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Risk Management Bulletin
Common Types Of Inventory Risk
Many retail, wholesale and manufacturing businesses rely on inventory. Understand the different types of inventory risk your business may face as you reduce costs and create better control practices that help you manage future inventory risks and help your company succeed.
One of the biggest inventory risks, theft can occur by customers and employees. It can happen in warehouses or other low-security areas, with creative inventory adjustments, when managers are distracted, or when security measures fail.
Damage can happen at almost any time during the normal process of business. Poor inventory controls, lack of surveillance and other factors contribute to this type of loss.
Errors during the receiving process, physical loss or other lost inventory affects your company’s equity. This risk can occur any time after the product arrives at your company’s warehouses or office.
Every product has a life cycle, which includes the product’s introduction, growth, maturity, decline, and withdrawal. Products at the end of the life cycle present the highest risk for your company.
Inventory that disappears, is damaged or expires between where it’s manufactured or acquired and the point of sale suffers from shrinkage. Rough transit practices, administrative errors or expiration of perishable goods cause this risk.
If you purchase too much inventory, you’ll be stuck with the excess. This risk happens because of poor sales forecasts, marketing issues or inventory planning failures.
When a product generates demand for only a short period of time and sells out quickly, you experience a supply shortfall. It happens often with a popular toy at Christmas or with other trendy inventory.
Materials, parts or products that sit unsold on the shelf lose their value. Volatile commodity prices or a competitor’s new product launch contribute to the value loss risk.
Most goods have a shelf life, and your inventory risk increases when you sell products with a short shelf life. Medical device manufacturers, grocery stores and similar companies are most likely to face this risk.
Incorrect inventory counts make up inherent risk. It results from control failures and could take months to discover if you only perform occasional audits.
When your production line runs out of materials or parts, you experience an input shortage. It causes expensive downtime or operational delays.
A special class of inventory risk, channel inventory risk affects companies that distribute products to partners. In this case, the partners can return unsold inventory or decline future orders.
Your company can save money and avoid future risks when you understand the different types of inventory risks. Use this information to create strong inventory control practices and protect your company's future.
Scurich Insurance Services
Ways to Get Back to Business Quickly After a Disaster
The Federal Emergency Management Agency (FEMA) reports that over 40 percent of businesses affected by a disaster do not reopen. Whether your business faces a natural, technological or human-caused disaster, you can get back to business quickly in several ways.
Of course, you cannot always predict disasters, but you can anticipate them. Consider this list of common disasters your business could face.
1. Natural disasters
Widespread illnesses or pandemics
2. Technology-related disasters
Computer failure or malfunction
3. Human-caused disasters
Intentional acts such as theft or fraud
Acts of violence
Access Your Business Contingency Plan
After creating a list of disasters that could affect your business, you’re ready to create a business contingency plan. It’s part of your emergency preparedness strategy. This backup plan outlines the steps you’ll take if you ever face a disaster, and it will address:
Some of the questions this document answers include:
Who is the go-to contact?
How will we accept, fill and track orders?
What alternatives are available if our vendors are non-operational?
What’s the best way to secure data?
Examine your business contingency plan today and make sure it addresses all your needs. With it, your business can regroup quickly after a disaster strikes.
You probably carry typical business insurance such as liability, property and employee coverage. Read these policies carefully, and store copies of your insurance documents in a safe place where they are easily accessible any time.
If you see gaps in your coverage or notice that you don’t have coverage for certain disasters, purchase additional policies. An umbrella coverage or flood insurance are two examples of insurance products that protect your business. For more details on how to prepare insurance-wise for an emergency of any kind, talk to your insurance agent.
Several organizations are available to help your business rebuild after a disaster strikes.
The Small Business Administration
- Apply for a low-rate, long-term loan through the SBA’s Office of Disaster Assistance.
- Talk to your banker about a low-cost loan or other financial assistance.
- File a claim and discuss your ongoing needs.
- Ask your community, including neighbors, clients and vendors, to help clean up, rebuild and return to business as usual.
When disaster strikes, your business must be prepared. These steps can help. If you don’t have these steps in place, consider implementing them today before a disaster strikes. One day, you may be very thankful you were prepared!
Scurich Insurance Services
Tips That Help Employees Manage Holiday-Related Workplace Risks
As your employees celebrate the holidays at work, they face several seasonal risks. Manage these risks as you promote safety in the workplace this year.
Holiday decorations boost morale but must be safe for employees.
Select decor that’s made of fire retardant and noncombustible material.
Be sure decorations do not block safety signs, exit doors or sprinkler systems.
Place decorations away from walkways and common areas to reduce trips and falls.
Use a ladder instead of furniture to hang high decorations.
Secure extension cords or strings of lights that must be placed along the floor.
While a company holiday party can improve teamwork and is fun, this event may also increase risks. Party safely when you:
Choose a generic winter theme for the party to avoid discrimination.
Play games that avoid pushing, shoving and other risks.
Serve alcohol in moderation and provide rides for your employees who wish to drink.
Manage Stress Safely
The extra duties of the holiday can increase stress for employees. Promote positive stress management to improve productivity, creativity and focus plus reduce accidents, injuries and illnesses.
Give employees the opportunity to work a flexible schedule. They can come in early or work from home as they complete work projects while participating in holiday events with family and friends.
Encourage exercise. Stretching and walking promote clear thinking and reduce tension and stress.
Serve fresh fruit, vegetables and water in the break room instead of cookies and eggnog for overall health and wellness.
Dedicated employees want to help the company improve fourth-quarter sales, but they should exercise caution. Employees should avoid selling inferior or unsafe products or cutting corners as they meet delivery deadlines. Also, your company culture should encourage work-life balance rather than push employees to make sales at all costs.
Control Inventory and Cash Safely
Employee theft rises during the holiday season. Address theft and reduce this risk when you take several precautions.
Train managers to pay attention and avoid distractions.
Carefully vet seasonal employees who may not be as loyal as full-time or long-term employees.
Increase security and require two people to count and deposit money.
Provide help for employees who may struggle financially during the holidays.
An increase in holiday traffic can affect employee safety as they drive to meetings or run work-related errands during the workday. Remind employees to obey all traffic laws and leave extra time as they navigate busy roads.
Your employees face increased risks increase during the holiday season. While you do have commercial business insurance that can cover these risks, take steps to minimize and manage risks as you protect your employees and company.
Scurich Insurance Services
Factors To Consider As You Evaluate Business Interruption Insurance
Business interruption insurance serves a valuable purpose for your company. It replaces lost income and pays extra expenses if a covered peril disrupts your business. Consider several factors as you evaluate business interruption insurance for your company.
List Covered Perils
The typical business interruption policy covers perils such as theft, wind, falling objects, fire and lightning. If your business is at risk for one of these perils, you may wish to purchase business interruption insurance and protect your company.
Replace Lost Income
While your standard business insurance covers tangible losses, business interruption insurance adds another layer of protection since it covers income losses, too. If your business cannot operate, you can file a claim and receive valuable compensation for your lost income as you rebuild your company.
Remember the Restoration Period
Most business interruption insurance policies cover your losses and income only during the restoration period. It’s defined as the amount of time you need to repair, replace or rebuild your property after a covered peril. Keep in mind that the restoration period depends on the peril.
Choose the Right Coverage Limit
When you purchase business interruption insurance, you will choose a policy coverage limit. It’s the amount of money you receive if you file a claim.
Because you must pay out-of-pocket if your losses exceed your coverage limit, ask several questions that help you choose adequate coverage for your needs.
How much time will it take to return your business to normal operational status?
Is your building protected? Does the sprinkler and alarm system functional properly?
Do you have immediate access to comparable commercial space or will it take time to find a suitable replacement location?
What is your current net income?
What ongoing loan payments, taxes and other expenses do you owe?
How many employees will you continue to pay?
While it’s beneficial, your business interruption coverage may not cover all your losses. You may need the extra expense and contingent business riders.
The extra expense rider will cover additional expenses you incur after a peril, such as higher than normal building rent or added expenses associated with rebuilding according to new codes.
The contingent business insurance rider covers lost profits that occur because of a peril other businesses face, including your suppliers or website provider.
Count the Cost
The cost of a business interruption insurance policy ranges from $750 to over $10,000. Weigh the premium cost against expense you may face if you cannot run your business properly because of an interruption.
When you consider these factors, you can decide if you need business interruption insurance. Your agent can also help you evaluate its importance for your company.
Scurich Insurance Services
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