Fundamentals of Risk Management

part of the world that were illegal in the country where the toys were to be sold
because of the use of lead-based paint.
It is possible that the cost of supply will be reduced, but the risks may actually be 
increased. When contracting out services and supply, the organization needs to be 
satisfied that the risks associated with this transfer are within the risk appetite and 
consistent with the risk attitude of the organization, as well as being within its risk 
capacity. Finally, evaluation should be undertaken to determine the actual risk exposures 
that are associated with increasingly complex supply chain arrangements.
Insurance may be available for incidents that occur at the supplier premises. 
However, the arrangement is normally such that physical damage such as a fire,
flood or earthquake is required to have happened at the supplier premises. In these 
circumstances, a policy extension may be available to the property damage insurance 
bought by the organization. Events such as poor quality of components, late delivery 
or the bankruptcy of the supplier are generally not insurable.

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Risk governance
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The automotive supply chain is as complex as it gets. There are approximately 20,000 parts
in a car, and if only one of those parts is unavailable the finished product cannot be shipped. 
Automotive manufacturers need to re-evaluate risk mitigation strategies to deal with 
large-scale disruptions of their supply chains. There are a number of avenues open to them, 
including:
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challenging suppliers to develop disaster plans so that they can make provisions to move 
to alternative sites for production, in the event that they are unable to produce product at 
their main plant;
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eliminating sole-source suppliers and developing the capabilities of additional companies; 
having one supplier is probably too few, but having five suppliers is too many in terms of 
achieving economies of scale;
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analysing where suppliers are located and limiting the number of critical component 
suppliers that are geographically situated in a risky area;
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reviewing insurance policies and considering whether to take out contingent business 
interruption insurance that protects against losses relating to the inability of suppliers
to deliver.
Motor industry supply chain

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