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Guest Blog: Weathering the Storm - How to Mitigate the Worst Effects of Disruption in Your Supply Chain

Reliability is a critical part of any supply chain. As chemical distributors, you owe it to the folks that depend on your products to have a plan for everything — even the unthinkable. 

Take natural disasters for example. There’s little you can do to stop a Category 4 Hurricane from making landfall alongside one of your primary rail service corridors. Or to stop a tornado from leveling a bridge on one of your most used trucking routes. But there is plenty you can do to prepare for that uncertainty and mitigate the worst effects of disruption for your customers and your business. 

So, what does it take to weather the storm? Every quarter, the economists at John Dunham & Associates provide NACD members with a snapshot of the current economic environment, forecasts of where the industry is headed, the potential impacts on the industry of legislative and regulative issues under discussion, and a focus article to help your businesses become more economically sustainable. Here are a few ideas from the Q1 newsletter to prepare for and protect against unexpected catastrophic events. 

Disaster Planning 

Disaster planning is one of the easiest things you can do to ensure continuity across your supply chain. It also happens to be one of the least expensive forms of insurance against extreme weather events and natural disasters. So, where do you start? 

Begin by identifying one person who will be in charge during an emergency. From there, identify how your business can keep in touch with key stakeholders throughout the emergency. Above all, your plan should account for the most probable types of risk that may befall your business. 

Redundancy Options 

Think of redundancy as your backup plan. In practice, you should identify alternative locations and ways for your staff to function in the event that your primary place of business is incapacitated. That could mean having an alternative warehouse to operate in, or even just a cloud backup for your data and customer logs. 

And while redundancy can be expensive to build into most business, smaller distributors can work together to develop partnerships that come into effect when there is a weather-related event that impacts one of them. 

Insurance & Other Financial Hedges 

Chances are you already have some form of business interruption insurance. Business interruption insurance ensures that your business doesn’t suffer financially from lost sales or destroyed equipment and inventory. And while it’s an important aspect of any disaster plan, insurance by itself doesn’t help keep your company operating during an emergency. 

Beyond that, there are other financial vehicles that can be used to help your company through a weather-related emergency — namely weather derivatives. Weather derivatives are financial instruments used by companies to hedge against the risk of weather-related losses. They work by paying out contract holders if weather events occur. The main difference between insurance and weather derivatives is that weather derivatives cover high probability events. 

By nature of the work you do, chemical distributors are uniquely reliant on infrastructure and transportation networks. Taken together, all of the above aspects of weather mitigation can help ensure your business keeps running in even the most trying conditions and circumstances. 

John Dunham is the President of John Dunham & Associates. John specializes in the economics of how public policy issues affect products and services. He has conducted hundreds of studies on taxes and regulation, and is a regular commentator on U.S. economic conditions.

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