28/11/2022
Howden UK Corporate advise manufacturers on the insurance implications of supply chain changes.
The recent volatility in manufacturers’ supply chains looks set to continue into the future, prompting businesses to reconsider and adjust their supply chain strategies.
That’s according to research from manufacturers’ organisation Make UK and Infor, which found that this volatility is having many knock-on effects, such as increased energy, transport and raw material costs.
And as we have seen at Howden UK Corporate, this also has implications for how well businesses are insured.
Volatility becomes the norm
The findings indicate that manufacturers’ strategies of off-shoring and operating a ‘just in time’ process have been turned upside down, to be replaced by ‘just in case’. The research was conducted just before Russia’s invasion of Ukraine which has made the challenge even more acute.
We spoke to Fergus McReynolds, director of EU & international affairs at Make UK, to hear more. He explained: “Over the last two years, the pandemic and the UK’s exit from the EU have created seismic changes in supply chain management, and actually that comes after a decade of volatility. And if we look to the future, we forecast considerable ongoing volatility in supply chains.”
Fergus talked through three broad approaches that companies were taking to mitigate the risks. The first was reconsidering their supplier base. “Do you expand your supplier base for greater resilience?” he questioned.
Another approach is to consider shortening the supply chain. Fergus said: “The latest iteration of near-shoring is ‘friend shoring’; you put your supply chains in countries which are friendly or at least share similar values and legal frameworks that allow you to have a much more predictable supply chain.”
The findings from Make UK’s report showed that nearly half (42%) of manufacturers had increased the proportion of suppliers based in Great Britain, with further reshoring in the pipeline for over two-fifths of companies.
Other businesses were responding by introducing risk management programmes and supply chain management systems. The research found that more than 70% of manufacturers have developed a strategy for managing suppliers. This means they can detect issues quickly and monitor availability and prices as well as tracking transport costs and just in time deliveries.
At the same time, manufacturers are attempting to further increase their visibility across their supply chains. Fergus says: “There is a growing category who are looking beyond their tier 1 suppliers and tier 1 customers. They want to predict some of the challenges they might face in the future by knowing what their suppliers’ suppliers are worried about. Those who have the most advanced supply chain mapping are looking beyond tier 4, really deep into their supply chains.”
Stay protected
As well as adopting new supply chain strategies to cope amid volatility, there are significant steps businesses can take to mitigate some of the risk
For example, find out whether the indemnity period on your business interruption cover is long enough to cover the current circumstances, such as lead times for replacement critical machinery or time taking to source materials required for repairs.
Now is also a good time to review your sums insured, increased costs for replacement items, raising raw material costs and labour shortages are inflating costs and sums insured must reflect these to ensure manufacturers are fully protected.
Bear in mind too the implications of stockpiling. At Howden UK Corporate, around 12 months ago we started to see some clients stockpile – in some cases they were even blocking fire doors and causing issues on the shop floors. Insurers are increasingly tightening risk management measures and a breach of such could result in a claim not being paid or at least delayed
Help is at hand
Howden have been Make UK’s insurance partner for 15 years. We want to help our manufacturing clients by demonstrating that we have deep knowledge of the risk environment for manufacturers – and how to navigate it.
We offer all our clients, regardless of the size of your business, an advised sale, meaning that we use our manufacturing expertise to advise you on the best insurance for your needs, and we support you every step of the way when taking out insurance and making claims.
To find out more about how we can help, contact the specialist Howden team. Call 01234 230275 or email:[email protected]