Poland and industrial supply chain: which risks for your business?

Reading time: 6 minutes

According to preliminary estimates released by the Central Statistical Office of Poland (GUS), GDP grew 2.8% in the full year 2016. The result was below 2015’s wider 3.9% expansion. Private consumption remained robust, growing 3.6%, above 2015’s 3.2% rise.

The outlook for companies and firms established in this Country remains positive for the future. However, some specific supply risks should be seriously taken in carefull consideration.

One of the advatages of Poland is its economic integration not only with the other three countries of the Visegrad Group (Czech Republic, Slovakia, Hungary) but mainly with Germany.

The commercial relationships between Poland and Germany have much strengthened over the last years, especially in the automotive sector; the economic “business-integration” between the Polish and German companies is known very well not only in the Visegrad region but in whole Europe.

Recently, Mercedes-Benz has chosen Poland as the Country where to inaugurate the production of a new car engine, in the city of Jawor: the investment amounts to approximely 500 million euros.

However, what at first glance seems an advantage, may reveal an Achilles’ heel.

What happens to a company based in Poland if suddenly the supply chain is interrupted by a claim which hits a German key supplier? And what about business interruption from dependent properties?

1. A first case : automotive.

A foreign company produces in Poland steering wheels for a specific German car model. If a claim damages the plant in Germany (suddenly, the assembly line burns down due to a fire), the production of those steering wheels, for that specific car model, stops because that product (the steering wheel) is not “absorbed” by the automaker’s chain.

A claim of this type may have very serious financial consequences. If they are not in advance adequately taken in consideration, may adversely affect the company’s financial budget as a result of an accident (in our case, the fire) occurred many kilometers away, at the German production site.

The interesting diagram here below summarizes, according to Allianz, the exposure of companies to such damages: after adverse weather and fires, supply chain interruption occupies immediately the third place.

Returning to our case, the fire that has hit the German automotive firm may seriously disrupt the production of the steering wheels: the Polish company is suddendly forced to stop its activity due to the fact that its German partner, which chain production is out of order, is unable to fullfill its supply contract.

2. A second case: electromechanical.

Two companies of the same group produce hydraulic presses: the former is established in Germany and deals with the mechanical part; the latter is in Poland and manages the electrical part and assembly.

If the former company suffers a serious damage from fire or flood, the latter may be soon in danger: if it plans to continue its activity, it is forced to buy the mechanical components from another company, possibly at higher prices. The consequence may be a considerable loss of profit.

A claim like this may have other several serious consequences: a business interruption which hits a single company group may increase the amount of the whole claim. This mainly happens in case of vertical integration of the production process.

How can we reduce these risks?

Finding another company to which to purchase the same type of steering wheel or electronic component it is not a piece of cake at all. That’s why companies must carefully evaluate the partners who have business with and be more informed about the whole production process of each of them.

It is very recommendable to:

Verify the inclusion of interdependence clause.

This clause may extend insurance coverage to all production sites, offices, factories, warehouses of the company with which our firm has a specific industrial supply relationship. The inclusion of all these “locations” in the policy allows the insurance company to identify immediately where the accident occurred (eg .: a major flood hits a particular region of Germany) and send their experts for a first valuation of the damages.

Specify and list in the insurance contracts the full names and locations of your business customers and suppliers.

The inclusion in the policy of the “suppliers” names gives this advantage: to protect our company from the financial damage caused by the sudden interruption happened at the production site of our business partner.

In this way, the insurance company undertakes to indemnify the insured against losses arising from an accident (a fire) which has hit one of the production site of that supplier expressly listed in the policy.

3. Production stop: denial of access.

For further information, I would like to focus the attention on another case of business interruption. We remains in the field of the relationship between our company and its commercial partners. However, the damage this time has not affected our suppliers or customers but our premises.

Let’s say that a severe flood hits the warehouse and storage of the Polish steering wheels. For our suppliers may be almost impossible to have access to the plant, fully flooded, and receive their goods.

In brief, the Polish company may find coverage thanking to a specific clause against this risk.

From their point of view, customers and foreign suppliers can be insured against the financial consequences arising from the claim which has hit the Polish company thanking of the interdependence clauses mentioned above.

It should be noted that managing business interruption claims is a complicated matter: for this evident reason it is always advisable to select a solid insurance company and appoint, before to conclude any insurance contract, a trusted risk manager.

In conclusion,  identifying  our key customers and analyzing  the effects of a key customer’s loss and its sudden inability to purchase our goods becomes a crucial issue for the survival of our business, no matter if in Poland, Germany or in other Countries.


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