Result Driven Impact

Supply Chain Interruption

Backstory

Dave owns and operates a garments importer in the Western U.S. and began an 831(b) Plan administered by SRA. Dave designed his plan to fit his business’s needs and to address the risks he was most concerned with including supply chain interruption. Dave contributed to his 831(b) Plan for several years without incident and was able to accumulate his annual contributions in a managed investment account. In 2020, Dave’s business was impacted significantly by the COVID-19 pandemic

  • INDUSTRY- Textiles
  • ANNUAL GROSS REVENUE- $30 Million
textiles

Risk Description

With the growth of the global economy supply chains have become more complex; along with the adoption of just-in-time inventories, a supply chain interruption can lead to significant business interruptions. Dave’s business imports its raw materials primarily from China and Vietnam via container shipping. The business utilizes a just-in-time inventory model that relies heavily on the timing of materials to fill customer purchase orders which carry strict terms in favor of the customer

Incident

Following the shutdown of Chinese factories during the COVID-19 pandemic, Dave’s Asian supply chain dried up in a matter of just a few business days. In the initial stages of the pandemic, when anticipating a pullback in demand and business shutdowns, Dave’s customers drastically reduced new orders, or stopped new orders altogether. With an unexpected boom in online retail sales Dave’s customers quickly began making new orders at pre-pandemic levels. While beholden to his customer’s purchase contracts, Dave began feeling the pressure as his Asian suppliers were ramping up production. To meet the terms of his purchase contracts, Dave was forced to airfreight materials from Asia in order to speed up the production process. Airfreight costs skyrocketed during the pandemic as many other businesses were under similar pressures. Dave incurred a significant amount of additional expenses as a result of his supply chain interruption

Resolution

Dave filed a claim for the supply chain interruption to the direct writer of his 831(b) Plan. The direct writer began its claims adjusting process to first determine coverage. Upon review the direct writer determined that its supply chain business interruption policy provided coverage for the additional shipping expenses. Once coverage was determined the direct writer requested additional documentation from Dave in order to understand the extent of loss caused by the incident.

After receiving Dave’s airfreight invoices and comparing those expenses to Dave’s ordinary shipping costs, the direct writer determined Dave’s loss and made a claim payment to his business for the limit of the policy. Following the claim payment Davewas able to meet the terms of his customer orders and maintain the strong relationships he has with his customers

The outline below breaks down how Dave’s $300,000 claim was paid by all parties, consisting of a deductible, his 831(b) Plan ARC, the direct writer, and the third-party interruption Risk Co-Op.

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