Supply Chain Risk Response-Risk Transference

Supply Chain Risk Response-Risk Transference

Supply Chain Risk Response-Risk Transference
Supply Chain Risk Response-Risk Transference

In dealing with supply chain risk, four main responses are commonly used:
  • assume/accept the risk     
  • avoid the risk     
  • mitigate/reduce the risk     
  • transfer the risk
In addition a combination of mixed reponses can be adopted.  Transferring the risk means passing the risk to another organization and a clear distinction should be made between transferring and shifting risk. When risk is shifted up or downstream the impact can still be significant in the whole Supply Chain unless the party in question manages the risk appropriately. 
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Such is the case with Warranty Clauses that shift risks upstream the value chain but when a quality issue arises the riple effect touches all the partners (see how Takata airbags recall, for example, cost car manufacturers hundreds of millions in expensive repairs and additional expenses).. 

nsurance is generally seen as a risk trasfer tool, although it is not the only one.  Insurance companies provide financial compensation, but such compensation will rarely cover the impact when risk materializes. The reputation damage, market share and opportunity loss can be difficult to estimate to their full extent. Some insurance packages offer coverage for "any non-excluded peril that reduces an insured’s output" which also can provide coverage through the different tiers in the supply chain.
Alternatively risk can be transferred or shifted through special contract clauses and provisions.  A hold harmless agreement is a written contract between two parties that states that one party will assume the risk of legal liability for the other party. Rather than seeking to bar a lawsuit, a hold-harmless agreement obligates one party to pay any costs the other incurs as a result of a claim or lawsuit.

Waivers, indemnity agreements, disclaimers, additional insured endorsement and risk sharing agreements are other risk transference contractual clauses that can be effectively used.  A detailed analysis of these and other risk transfer contract clauses is beyond the scope of this post as I am not a legal expert. 
For those interested in further reading I recommend the following article by Dan Burge, Catherine Bingham and Amanda Lewis:
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Frank Velunza Martinez
Experienced commercial executive with strong interpersonal skills and the capacity to work in teams or independently, under pressure and tight deadlines.

Previous positions have been in management, strategic global sourcing and distribution within Supply Chain Management. I have mostly been involved in procurement of complex technology projects, security, IT, consumer and automotive products. 

Recently completed a Master Certificate in Supply Chain Management and Procurement with the Michigan State University. I am currently working on APICS-CPIM and pursuing SCMAO (formely known as OIPMAC)-CSCMP in order to certify my skills in North America. I am also enrolled in several other courses.  As an insatiable self-learner I am passionate about inclusive leadership, strategy, management, efficiency and economics.

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