Corporations need to utilize risk models to determine hazards totheir supply chains, brokerage executives advised at a Web seminaryesterday.

Their comments came during an online event yesterday sponsoredby Chicago-based insurance broker Aon.

Paul Graziano, executive vice president of Aon's NationalIndustry and Product Group, pointed out at the seminar that themore efficient a client's supply chain is, the more susceptible itis to disruption.

The discussion included Mary Duhig, director of Aon TradeCredit; Brian Eklow, senior consultant with Aon strategic riskadvisory services; Mike Giacobbe, director of Aon strategic riskadvisory services; and Barb Spain, senior vice president with Aonmarine group.

Seminar speakers said studies indicate that a supply chaininterruption can cost a company between 3 and 4 percent of itsprofit.

When examining exposure, the executives pointed out, the mosteffective way to identify the areas of vulnerability is to developrisk models. The models create risk scenarios and identify wherethe corporation is most vulnerable given a situation that coulddisrupt production or distribution of its product.

They also pointed out models can help a corporation determineits risk appetite, whether it needs to transfer risk or can affordto self-insure all or portions of the exposure.

While corporations can face some standard risks overseas fromweather-related exposures or concerns with government appropriationof property, there are other risks they might not have considered,the panel said.

These can include damage to a corporation's reputation fromillegal business practices of a supplier, such as the use of sweatshops.

With the help of risk models, corporations can determine if theyneed to identify alternative suppliers, or if they can only relyupon a single supplier as the sole source.

The models can also help identify natural risks to thosesuppliers and help determine if a corporation needs to put plans inplace to protect the supply chain and recover from supplydisruptions.

A replay of the seminar titled “Managing Risk in the SupplyChain: Building a Capital Allocation Framework” is available athttp://aon.com/webseminars/.