Wholesale and Distribution
Wholesale and distribution companies can have very different risk exposures depending resource, activity and product/service exposures mostly depending on the merchandise they handle.
Resource Risks for Wholesalers and Distributors
Wholesalers and distributors usually bring large amounts of capital to their business in the form of real property, vehicles, and stocks of merchandise (inventory). This creates large property exposures that are best mitigated by the use of insurance. Our Insurance RFP© can help wholesalers and distributors to purchase insurance.
Some of those assets like inventory also have the risk of value loss due to market conditions. This risk could be better mitigated by the use of derivatives like currency swaps, forward and future contracts. Our Hedging Master© allows the client to do physical hedging to mitigate this risk.
Balance sheet exposures, like those above, will stay there even if the company decides not to operate. Income statement exposures are the result of doing something with the capital brought to the business (operating capital). The greatest exposures in this category are losses from changes in price and quantity. This apply to revenues and expenses. On the revenue side, it’s all about sales. We’ll just need to manage the risk of our customers buying the quantities that we budgeted at the price that we set. On the expense side, there is a lot more risk involved, and usually is in direct correlation with each cost driver. Some of these cost drivers are electricity, specially for companies handling perishable products, and fuel for the distribution fleet. Our Utility Risk Manager© can help the company to reduce their overall cost of electricity by tracking their cost and usage, auditing their energy bills and hedging their exposure to fluctuations to electricity prices (unregulated energy markets). In addition, our Hedging Master© allows the risk manager to do physical hedging directly from the fuel supplier and even calculate total savings (based on real-time fuel prices) before placing an order.
Activity Risks for Wholesalers and Distributors
Wholesalers and distributors perform a large number of activities in order to store and distribute products to its customers. These activities can be grouped into departments like purchasing, marketing, storage and distribution activities; or based on the company’s goals and objectives, into strategic (long term), operational (day-to-day), financial (money), and compliance (government) activities.
As a result of performing these activities, wholesalers and distributors experience the possibility of a liability loss as a result of a specific legal claim or suit against the company. One way companies transfer (or mitigate) this risk is by Outsourcing the activity (or a set of activities). Our Activity-Based ERM© can help companies to decide if a particular activity is better outsourced (subcontracted) or kept in-house, when the cost savings can not offset the increase in company risk. If the company decides to outsource, the Contractual RM© will help manage the risk of subcontracting and outsourcing.
In addition to using contract risk transfer, companies can mitigate these liability exposures by the purchase of insurance products like Workers Compensation, Auto Liability Insurance, Employers Liability insurance, Commercial General Liability insurance, Warehouse Legal Liability and others. (Insurance RFP©).
Another large exposure for wholesalers and distributors is to losses from business interruption. In addition to purchasing insurance , the company will need to prepare a Business Continuity Plan (BCP) explaining how the company would respond to an emergency (Emergency Response Plan-ERP) and how would recover from it (Continuity of Operations-COOP). Our Insight BCP© help companies to plan for and respond to emergencies.
Product and Service Risks Wholesalers and Distributors
Due to strict and absolute liability laws, regardless of how safe wholesalers and distributors provide their products and services, there is always the possibility that the company may become legally obligated to pay damages.
Product or Service risks have less to do with how the product was made or the service performed and more with who will be using the product or receiving the service. The users of pharmaceuticals and toy manufacturers are sick people and children. It will be impossible for these manufacturers, their wholesalers and distributors to eliminate the risk of some sick person getting sicker after taking the drug or a child getting hurt playing with the toy.
Insurance is the best way to transfer risk of events that are totally unpredictable. (Insurance RFP©). In addition, our Activity-Based ERM© can help companies to identify and mitigate this product/service related exposures.