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Insurance is a must throughout the supply chain. Warehousing, transportation, manufacturing sites and more have different policies protecting them from risk. Now there’s another form of insurance that doesn’t require an insurance agent or lengthy, complex contracts, just an internal decision.
Companies are setting aside large sums of money to cover themselves in the case of unplanned or expedited freight management issues.
“There’s so much money on unplanned spend that people are blowing their budgets in the first quarter,” Greg Scheevel, director of global development at TOC Logistics, told Supply Chain Dive. “The global supply chain manages business using strategies that don’t fit today’s market. To protect themselves, they need to set aside money.”
Some of the biggest risk, he said, is in the automotive industry. “OEMs like Ford, GM and Daimler, can’t shut down the product line or [suppliers] will pay massive penalties. That’s why they’re doing unplanned spends—ad hoc air freight or charters—to protect against the fines.”
According to a report by Cambridge Property & Casualty, one automotive company has established a $500 per minute penalty if a late delivery shuts down their assembly line. That translates to $30,000 an hour. A five-day shutdown would reach $3.6 million in penalties. It might also result in the loss of the business for the supplier. A large enough fine, of course, could put the supplier completely out of business.