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Manufacturing has gone through a fundamental change over the last 50 years. Previously, companies stored parts on site, using them when required by the manufacturing process. Now, everybody uses a "just in time" system, where parts and materials are delivered right before they are used.
This creates a potential problem: what if a crucial part isn't delivered on time? The company has to either slow down production or stop altogether, potentially losing revenue in the process.
A "supply chain disruption" policy -- a staple of captive insurance companies -- can minimize the damage. These policies indemnify the company for the loss related to the delay.
A recent story from Bloomberg highlights this risk:
BMW AG will seek compensation from Robert Bosch GmbH after missing parts for models including the bestselling 3-Series sedan caused production stoppages in Germany, China and South Africa.
A lack of steering gears supplied by Bosch, the world’s largest car parts supplier, means there’s only limited vehicle production at various German plants, while factories in Tiexi, China, and Rosslyn, South Africa, have moved up or extended planned interruptions, BMW purchasing chief Markus Duesmann said Monday in an emailed statement