Marsh: Iceland Volcano Fallout Could Impact Supply Chain Resilience

Businesses must take action to ensure continuity of operations and adequate
inventory flows
NEW YORK--(Business Wire)--
Marsh, the world`s leading insurance broker and risk advisor, recommends that
organizations affected by the transport and trade disruptions caused by the
eruption of the Eyjafjallajökull volcano in Iceland and subsequent ash cloud
covering European airspace review their applicable insurance policies; assess
the personnel, operational, financial, reputational, and compliance impacts; and
initiate business contingency plans as appropriate.

"While it is unclear exactly how long these disruptions will last and if they
will reoccur, companies must closely examine not only what work functions could
be at risk, but their ability to source perishable or time-sensitive goods,
finished products, and even component parts from suppliers," said Gary Lynch,
Marsh Risk Consulting`s Global Supply Chain Risk Consulting Practice Leader.
"Today`s extended global supply chains often do not provide the transparency
needed to ensure a continuous flow of products and parts under current
circumstances. While it is easy to check the inventory of products destined for
the ultimate buyer, it is more difficult to assess inventories of component
parts or ingredients used in intermediate production or by suppliers several
steps removed."

As a result of the volcano-induced disruptions, many organizations have begun
implementing business contingency plans in order to maintain continuity of
operations, mitigate challenges posed by staff absences, minimize supply chain
breakages, contain the financial and brand fallout, and preserve stakeholder
relationships. Businesses that have considered the implications of this type of
event and established their customer, product, and market priorities will be
better placed to cope with any threats to their supply chains.

Steps currently being taken to reduce personnel and operational impacts
include:

* Encouraging key staff to plan for continued work availability in the event
that travel plans are disrupted
* Ensuring that HR policies for dealing with temporary staff absences are in
place and well understood by both management and the workforce
* Tracking the whereabouts and monitoring the welfare of affected employees
* Establishing methods and processes for both internal and external meetings and
communications (e.g. teleconferencing, hotlines, remote access to e-mail)
* Actively monitoring the situation and communicating relevant information to
employees and stakeholders (e.g. situation updates and impact to the
organization, absentee rates, travel updates)

In addition, Marsh recommends:

* Conducting a critical skills analysis and undertaking succession planning for
unforeseen events
* Reviewing the possibility of temporarily switching some activities to sites
that may be less impacted and/or that have suitably experienced staff available,
using a contracted workforce or fulfilling product demand via outsourcing to a
competitor
* Determining how to best service customers, suppliers and other key
stakeholders, including validating service-level expectations, providing early
warnings of any problems and establishing disruption resolution workflows
* Revisiting the business impact analysis (BIA), with a focus on the
consequences of breakages in the supply chain i.e. the availability of
transportation systems and routes, suppliers and inventory
* Testing assumptions, business priorities and investment decisions based on the
current volcano-event

"The health and safety of employees should be a priority," said Lynch. "At the
same time, businesses must realize there are serious implications in the short
and long term for their supply chains, particularly those involved in the
manufacture and distribution of perishable, time-sensitive or high-value goods
such as produce, flowers, pharmaceuticals, technology or resources critical to
production processes. Organizations not familiar with the extent of their supply
chains and their suppliers` plans for managing disruptions could face shortages
as inventory becomes depleted and replenishment becomes a challenge."

Marsh recommends a number of supply chain resilience actions including:

* Establishing priorities for product/SKUs based on value to the business,
mapping their associated extended supply chain and identifying those that
require long lead times or are sole-sourced
* Considering alternative routes to market if goods cannot be moved to planned
purchasers in a timely manner
* Provisioning for additional storage of excess products and components and for
alternative sourcing
* Collaborating on contingency plans with air cargo handlers to verify
suitability and ensure availability of capacity in a competitive marketplace
* Developing plans for alternative ground transportation via contractual
agreements, in advance if possible, as air transport alternatives will be in
high demand
* Familiarizing the organization with suppliers` contingency plans and related
businesses that impact on the supply chain
* Reviewing contractual obligations with suppliers and key metrics such as
service level impacts between two parties (fill rates)
* Considering longer term action such as supply chain diversification strategies
to avoid future single points of failure

While a volcano-related disruption would typically fall under a property
policy`s earthquake coverage-even if the policy has ingress-egress or civil
authority time element extensions-it requires that physical damage to the
insured cause a lack of access to the insured's location. Some policies also
have distance and time limitations where the damage must occur. As such,
insureds should carefully review the terms and conditions of their insurance
with their broker claims representative. Furthermore, Marsh recommends that
organizations closely document all related financial losses to support any
claims to be made under applicable policies.

About Marsh

Marsh has over 23,000 employees and provides advice and transactional
capabilities to clients in over 100 countries. Marsh is a unit of Marsh &
McLennan Companies (MMC), a global professional services firm with approximately
52,000 employees and annual revenue exceeding $10 billion. MMC also is the
parent company of Guy Carpenter, the risk and reinsurance specialist; Kroll, the
risk consulting firm; Mercer, the provider of HR and related financial advice
and services; and Oliver Wyman, the management consultancy. MMC's stock (ticker
symbol: MMC) is listed on the New York, Chicago and London stock exchanges.
MMC's Web Site is www.mmc.com. Marsh`s Web site is www.marsh.com.

Marsh
Anand Poola, 212-345-4292
anand.poola@marsh.com

Copyright Business Wire 2010