If you're an insurance producer that would like to add captives to their business model, please sign-up for our webinar on Friday, August 24 titled, Adding Captives to Your Insurance Practice. You can sign-up at this link.
Back when I first started studying economics and business, it was standard practice for businesses to stockpile raw materials for production. Manufacturers would have a lot (or two or three) next to their production facility where they would store raw materials that would eventually be used to produce their product.
That practice started to change sometime in the late 1970s or early 1980s when the "just-in-time" model came into being. This model is
a management strategy that aligns raw-material orders from suppliers directly with production schedules. Companies use this inventory strategy to increase efficiency and decrease waste by receiving goods only as they need them for the production process, which reduces inventory costs. This method requires producers to forecast demand accurately.
While this method of inventory management is more efficient, it opens the company up to a new set of risks. For example, suppose the delivery of key element "X" is late because a storm in the Pacific Ocean forced boats to shift transportation lanes. This would slow or stop production, causing short-term losses. This is but one fact pattern that illustrates the problem of "supply chain disruption." Captives are a potential solution to this problem:
With the growth of just-in-time manufacturing and global sourcing, supply chains are becoming more complex and vulnerable.
Meanwhile, dangers such as aging infrastructures, political instability, climate change, cyber threats, communications vulnerabilities and even reputational harm, threaten first-, second-, and even third-tier suppliers.
According to Nick Wildgoose, Zurich’s global supply chain product leader, investment in supply chain risk management has increased considerably since the global disruptions of 2011. Even so, he said, the level of disruption is still high, with 65 percent of corporations [reporting] a disruption in 2017.
If your company has at least $10 million in revenue or 25 employees, a pure captive might be a solution to some of your supply-chain (or other) issues. Please contact us to learn more.