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Understanding Supply Chain Risk: Liabilities

By Avetta Marketing
February 07, 2022
4 minutes
Understanding Supply Chain Risk: Liabilities

Supply chains are incredibly complex systems, especially when they cross borders. Companies are expected to manage diverse and geographically distributed supply chains with multiple tiers of contractors and subcontractors on top of normal operations.

Owning a company and using an extended network of suppliers can be susceptible to several types of risks in the form of health and safety, cybersecurity and ESG non-compliance, which the parent organization is often held liable.

While small and medium-sized businesses are more vulnerable to liability risks arising from extended supplier networks due to lack of visibility, the legal and financial repercussions can create serious implications for all organizations across industries. 

You may have questions about liabilities within your supply chain—we have answers…

What is supply chain liability?

Supply chain liability is when a corporation is liable for damages caused by its business partners, including suppliers, subcontractors and even customers. Non-compliance with legislation regulations

The legal theory of corporate supply chain liability implies that a company can be held liable for damage-causing events in its supply chain if it fails to prevent the damage in violation of some duty to do so.

The foundations of supply chain liability include both corporate social responsibility and supply chain responsibility.

Corporate social responsibility Companies have a duty to be socially accountable for their themselves, stakeholders, suppliers, and the public. Business partners who do not practice the same CSR values can be detrimental to your business. 

Supply chain responsibility Companies should build their foundations to be strong, transparent, and include trusted partnerships. Working with business partners who are not transparent and do not meet your compliances can damage your over business, making you more susceptible to business risks.

The bottom line is that a corporation can be held liable for damage caused by its business partners on the ground that it failed to prevent damage caused by others where it had a duty to do so.

What are examples of supply chain liabilities?

Examples of risks you may be liable for include:

  • human rights violations
  • environmental degradation
  • health & safety
  • cyberattacks & security breaches
  • property damage

Should I get insurance?

Insurance can help cover financial damages you’re liable for. Every company should ensure that all parties, including suppliers and subcontractors, are insured—it’s essential for protecting your business.

How can I prevent damages or events within my supply chain I may be liable for?

Avetta understands that every supply chain is unique that comes with a diverse range of risk factors. The Avetta One is the industry’s largest Supply Chain Risk Management (SCRM) platform. The platform comes embedded with a high-end “certificate of insurance” tracking mechanism that provides you with the opportunity to track suppliers’ insurance in real-time through automated alerts—ensuring you’re always covered from all liability risks involved.

As a complete suite of our supply chain risk management solutions, the platform provides you with a comprehensive insurance verification solution that can help in: 

  • Managing Risk End-to-End: Proactively manage risk by ensuring your company is covered and suppliers have sufficient insurance coverage.
  • Reducing Complexity: Avetta does the heavy lifting of collecting, verifying, and monitoring supplier insurance for an efficient risk management process.
  • Gaining Supply Chain Visibility: Expose the insurance gaps that exist within your supply chain and take the necessary actions to protect your company from unnecessary liability risks.

To learn more about supply chain management visit our website, call 844-633-3801, or email [email protected].

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