Supply Chain Risk – Banner Supply’s $55M Chinese Drywall Settlement
Supply Chain Risk News
Banner Supply OKs $55M Chinese Drywall Settlement
A supply chain risk story from Tampa Bay BizJournals details drywall supplier Banner Supply Co. and its insurers have agreed to pay $54.5 million to settle about 2,000 claims from Florida victims of the Chinese drywall fiasco. The settlement is only for Florida, the state with the most Chinese drywall homes, because Banner only distributes in Florida. The settlement comes to an average of about $33,000 a claim. The high-sulfur, corrosive drywall is thought to have caused at least $100,000 in damages to each home. Previously, Banner had reached settlements worth about $11 million.
Analysis by Wally Buran, Edenfield Executive in Residence, Georgia Institute of Technology
Failure to control critical supply chains is the largest failure in a disaster. Each disaster reinforces this experience with fresh new examples. But other exposures arise from your supply chain. Your supply chain can create its own disruption or crisis without a disaster striking your company or a vendor directly.
Have you identified your critical suppliers? Have you reviewed their business continuity and crisis plans? Have you identified the metrics to use to evaluate their exposures and plans?
Supply Chain Risk Liability
This story is an example of how the actions of your suppliers can create liability for the distributor or manufacturer. In Florida alone, hundreds of millions of dollars of liability arose as a result of imported high-sulfur corrosive Chinese dry wall. Do you know the materials or ingredients of the products that you use? Are you sure? How do you know?
Even if you utilize service providers (for example, call centers, IT, etc.), as part of your supply chain, you have a responsibility to know what is happening. Have you audited your critical service providers? For example, liability for identity protection can arise quickly.
The lessons learned here extend beyond supply chain to insurance recovery. Regularly, companies express that the lack of need for planning since they have insurance. As we review exposures, insurance does not guarantee complete coverage of losses or damages. Here the damages were over $100,000 per home, but the insurance carriers agreed to pay only 33 percent of that amount. Based on your industry and your regulatory environment you may be required to conduct audits onsite of your critical suppliers at least once every three years. When was the last time you audited your suppliers?
How do I leverage business continuity?
Firestorm has developed a proprietary maturity model operational business continuity review. This review enables a company to evaluate this business continuity program as critical success factors using a 4-stage maturity assessment tool and creates a corporate role and responsibility matrix. The analysis framework is built on:
- Industry-identified best practices
- Industry standards for business continuity
- Firestorm’s work in successfully implementing sustainable and effective business continuity programs
As a result a company can move the program beyond a liability through basic/minimal requirements, to a strategic value and ultimately brand differentiation. This shift creates a culture of preparedness and resiliency as the company escalates:
- Control Breakthrough
- Alignment Breakthrough
- Value Breakthrough
Are you only responding to a crisis or enhancing value?
Wally Buran is the Edenfield Executive in Residence at the Georgia Institute of Technology and Executive Vice President of Firestorm Solutions. With Georgia Tech, he serves on the Advisory Boards of the School of Industrial and Systems Engineering, the Supply Chain and Logistics Institute and helped build the Tennenbaum Institute for Enterprise Transformation. Read his full bio HERE