Matt Hodges-Long 25/02/2018
Supply chain risk
It’s been almost a month since news broke that the UK’s second largest construction company, Carillion, had gone into liquidation. And while it may no longer be front page news for many, Britain’s biggest corporate failure in a decade continues to cause sleepless nights for those suppliers left facing financial ruin. Supply chain risk is overlooked at your peril.
Up to 30,000 businesses are owed around £1.2bn in unpaid costs. Yet, according to the Association of British Insurers (ABI) only around 3%, or £31 million is expected to be recovered through trade credit insurance. That’s a staggering shortfall.
That’s a massive black hole of £900 million for work completed. Before even considering the value of the forward order book.
It’s a stark reminder of the importance of risk management and risk transfer. Not just within your own business or organisation, but for your supply chain too.
Those companies looking ahead and wanting to improve the resilience of their supply chain should:
- Look at both downstream and upstream supply chains – it’s not just about money you are owed, but about the products and services you need in order to deliver your own (think about KFC’s current chicken shortage!)
- Regularly review suppliers for financial, confidentiality, operational, reputational and legal risks. Automating the administration of this process, through a system such as TrackMyRisks, significantly reduces the time and costs involved
- Consider insuring against potential loss with trade credit insurance – designed to pay out when your creditors can’t
Whilst it’s not possible to eliminate supply chain risk entirely, a resilient and high performing supply chain is perfectly achievable and should be a priority for all organisations. The insolvency of one business can have a catastrophic domino effect on others and by the time it hits the papers, it’s already too late.