Justifying Investments in Risk Avoidance

Supply Chain @ MIT

Insurance companies face this issue when selling disruption insurance, or when trying to convince manufacturers to reduce both the likelihood and impact of business interruptions through measures such as increasing inventory levels and developing alternative suppliers. Consider, for example, Amazon’s drive to build more warehouses throughout the US. The strategy incurs higher costs in terms of capital expenditures, labor, and inventory, but the payoff is superior service.