#2 Business interruption (including supply chain disruption)

Business interruption was ranked as the number one global risk for the sixth consecutive year and the number two business risk in Australia.

Business interruption risk concerns are predominantly centred around infrastructure and supply chain disruption – both physical and electronic.

Traditional physical property damage to one's own supply chain infrastructure continues to be a risk. However, as supplier interdependence and supply chain integration takes on greater importance for business performance, businesses are forced more and more to consider the risk of third party supply chain infrastructure disruption as a critical risk to their own performance.

Also, business processes and information are becoming just as or more important than the end product or service, as product or service delivery, electronic supply chain integration and customer engagement increasingly become a primary means of marketplace differentiation. Systems disruption, communications protocol breakdown and data loss or corruption are now seen as key electronic supply chain risks.

Whilst natural disasters can't be controlled, other business interruption risks, or their consequences and mitigation, can be managed. Know-your-partner/supplier/contractor pre-engagement assurance processes should be seen as an investment in supply chain security and continuity.

Actively managing the performance of contracting parties is also essential to avoid supply chain disruption. Contracts should provide for performance measurement and management processes to encourage ongoing performance and/or provide for an orderly and timely transition to alternate providers if performance problems persist. Clear contracting is incredibly important in providing explicit performance standards and a clear exit plan. Any uncertainty on these fronts inevitably leads to disputes and delay, which can exacerbate the duration and impact of business disruption.

This publication does not deal with every important topic or change in law and is not intended to be relied upon as a substitute for legal or other advice that may be relevant to the reader's specific circumstances. If you have found this publication of interest and would like to know more or wish to obtain legal advice relevant to your circumstances please contact one of the named individuals listed.