Supply Chain Risk Engineering

Problem

Globalised, heavily segmented value chains and single-source procurement increase dependency on individual suppliers or sites. A critical supplier for risk assessment purposes is not necessarily the one with the highest purchasing volume, but the one whose failure would trigger the largest loss of income at the policyholder’s own operation.

Approach

The assessment maps suppliers and customers by substitutability, lead time and share of own production, determines the maximum outage duration for each critical partner in the event of a total loss, and derives the required contingent business interruption limit from it. Multi-sourcing, stock buffers and alternative sources of supply are reviewed as mitigating measures.

Insurance relevance

The results determine the limit structure of contingent business interruption cover and the distinction between named and unnamed suppliers in the policy. Inadequately mapped supply chains are among the most common causes of underinsured business interruption losses.