CBIZ Manufacturing & Distribution Quarterly Newsletter – June 2021

QUARTERLYHOT TOPICS
CBIZ Manufacturing & Distribution
Manufacturing Relationships. Distributing Quality.
CBIZ Manufacturing & Distribution
QUARTERLYHOT TOPICS
IN THIS ISSUE:
Helping clients in the
manufacturing and distribution
sectors maximize their potential
and navigate industry changes.
Manufacturing
& Distribution
JUNE 2021 | ISSUE NO. 10
PAGE 1
©
Copyright
2021.
CBIZ,
Inc.
NYSE
Listed:
CBZ.
All
rights
reserved.
(Continued on page 2)
T
he Employee Retention Tax Credit (ERTC) was established by the Coronavirus Aid, Relief,
and Economic Security (CARES) Act, but limitations on its availability tempered interest in
the relief measure. That is about to change, thanks to significant changes made on Dec.
27, 2020, by the Consolidated Appropriations Act, 2021 (the Act). The ERTC is now available
to employers that received loans under the Payroll Protection Program (PPP), so any employer
meeting ERTC eligibility criteria can benefit. Because employers potentially benefit from the
enhanced ERTC on a retroactive basis, employers should immediately begin analyses to identify
and calculate the value of retroactive or prospective ERTC benefits.
Background
The ERTC is a fully refundable tax credit for employers equal to a percentage of qualified wages
(including allocable qualified health plan expenses) that eligible employers pay their employees.
The ERTC is commonplace in disaster relief legislation (such as the CARES Act) and is designed
to encourage employers to retain their workforce during periods of disruption. Under the CARES
Act, the ERTC is equal to 50% of qualified wages paid after March 12, 2020, and before Jan. 1,
2021. The CARES Act provides that the maximum amount of qualified wages taken into account
with respect to each employee for all 2020 calendar quarters is $10,000, so that the maximum
Don’t Miss Out on the Newly
Supercharged Employee
Retention Tax Credit
1-800-ASK-CBIZ • CBIZ Manufacturing & Distribution National Practice @CBZ
CBIZ BizTipsVideos
Don’t Miss Out on the Newly
Supercharged Employee
Retention Tax Credit
PAGE 1
Innovations in Benefits Can
Manufacture Savings: a
Practical & Profit-Saving Pivot
PAGE 3
Managing Insurance
Coverages & Costs – Your
Hands Aren’t Tied!
PAGE 5
Timely Resources and
Insights
PAGE 6
Ready to Go Global? The U.S.
Commercial Service Is Ready
to Help
PAGE 7
Supply Chain Challenges
Become Full Blown Risks
PAGE 9

1-800-ASK-CBIZ • CBIZ Manufacturing & Distribution National Practice @CBZ
CBIZ BizTipsVideos PAGE 2
(Continued from page 1)
credit for an eligible employer for qualified wages paid to
any employee during 2020 is $5,000.
Very generally, eligible employers for the purposes of the
ERTC are employers that carry on a trade or business
during calendar year 2020, including tax-exempt
organizations, that either:
■
Fully or partially suspend operation during any
calendar quarter in 2020 due to orders from
an appropriate governmental authority limiting
commerce, travel, or group meetings (for
commercial, social, religious, or other purposes)
due to COVID-19; or
■
Experience a 50% decline in gross receipts during
the calendar quarter.
As originally provided by the CARES Act, employers who
received a PPP loan were ineligible to claim the ERTC.
Prospective Changes
The Act makes several important modifications to the
ERTC that both expand and extend its application. The
prospective modifications extend the ERTC through the
first two quarters of 2021. Beginning on Jan. 1, 2021
and through June 30, 2021, the Act:
■
Increases the credit rate from 50 to 70% of
qualified wages;
■
Expands eligibility for the credit by reducing the
required year-over-year gross receipts decline
from 50% to 20% and provides a safe harbor
allowing employers to use prior quarter gross
receipts to determine eligibility;
■
Increases the limit on per-employee creditable
wages from $10,000 for the year to $10,000 for
each quarter;
■
Increases the 100-employee delineation for
determining the relevant qualified wage base to
employers with 500 or fewer employees;
■
Allows certain public instrumentalities to claim
the credit;
■
Removes the 30-day wage limitation, allowing
employers to, for example, claim the credit for
bonus pay to essential workers;
■
Allows businesses with 500 or fewer employees
to advance the credit at any point during the
quarter based on wages paid in the same quarter
in a previous year; and
■
Provides rules to allow new employers who were
not in existence for all or part of 2019 to be able
to claim the credit.
The maximum additional amount of per-employee
qualified wages is $20,000 during the first two quarters
of 2021, which would produce an additional per-
employee ERTC of $14,000 during 2021. This is only
the beginning of the additional benefits, since there are
potential retroactive benefits to also consider.
Retroactive Changes
The Act removes a limitation under the CARES Act that
prohibited employers from claiming the ERTC when
the employer also received a PPP loan. The removal
of this prohibition is made retroactive to the date of
enactment under the CARES Act, meaning employers may
already have potential ERTC benefits that did not exist
previously. The Act imposes guardrails to limit the extent
of this retroactive benefit, however. Specifically, the Act
provides that an employer may not claim the ERTC on
the same wages that are used to substantiate PPP loan
forgiveness. An employer chooses to apply wages toward
PPP loan forgiveness by making an election to not claim
the ERTC (the IRS will eventually establish these election
procedures).
Still, the retroactive benefits made by the Act to the ERTC
should not be overlooked. An employer may not qualify
for PPP loan forgiveness, in which case all of the wages
are potentially available for the ERTC.Further, an employer
may have incurred more wages than were needed to
substantiate PPP loan forgiveness, in which case these
“excess” 2020 wages are now available for the ERTC.
The Act provides special rules that employers may use to
claim retroactive ERTC benefits. In recognition of the fact
that payroll tax returns have already been filed for the first
three quarters of 2020, the Act permits an employer an
election to treat the retroactive ERTC benefits as incurred
during the fourth quarter of 2020. For this purpose, the
retroactive benefits are those based on eligible wages
paid after Dec. 31, 2019, and before Oct. 1, 2020.
Again, the IRS will eventually establish these election
procedures, but this election should prevent the need to
amend previous payroll tax returns in order to claim the
retroactive ERTC benefits.
Next Steps
The retroactive and prospective changes to the ERTC
dramatically increase its relevance to businesses
affected by the coronavirus pandemic. To assist you with
calculations for the amount of the ERTC we developed
an ERTC calculation template, which may be downloaded
here.
The IRS also has a webpage dedicated to the operation
of the ERTC, including information that is essential to the
determination of an eligible employer. As of the date of
this writing, the IRS webpage is not yet updated for the
changes made by the Act but it should be updated soon
and still has current information about eligible employers
that is unaffected by the Act.
For more information about the ERTC or the changes
made by the Act, please contact us.

1-800-ASK-CBIZ • CBIZ Manufacturing Distribution National Practice @CBZ
CBIZ BizTipsVideos
Innovations in Benefits Can Manufacture
Savings: a Practical Profit-Saving Pivot
BY COLE HARRIS, VP, CBIZ Benefits Insurance
of Tennessee
T
he pandemic confirmed that the manufacturing
sector can call “innovation” a survival skill. “Making
changes in something established, especially
by introducing new methods, ideas, or products” or
“introducing something new” . . . that’s the Oxford
Language view of the term innovate. And that is exactly
what U.S. manufacturers have done to stay operational in
spite of COVID-19’s impact and to meet new production
and market demands produced by the pandemic.
Innovation is a dynamic that manufacturers understand.
Not all industries have embraced that concept. For many
years, the insurance industry found innovation conflicted
with the established processes of health care delivery,
particularly for employer health care benefit programs.
Increasing benefits led to increased spend. Reducing
spend was entirely a function of reducing benefits. No
question, this was a paradigm in need of innovation.
As markets have evolved, however, there are now, finally,
innovative ways to manage cost without sacrificing the
quality of this critical employee benefit. In much the same
way a manufacturer sources raw materials and negotiates
the procurement process, creative procurement of health
care for the highest cost claimants (85% of the spend)
will have significant impact, while permitting benefits
and plan structure to remain the same at the employee
level. The potential savings to employers can be more
significant than imagined.
Sound too good to be true? Let’s review two real-life
examples of how re-exerting control over the supply side
of health care can reduce spend and maintain quality
health plans.
Case Study 1
The company had seen large increases in costs from
2017-2019 with no end in sight. They have a total
workforce of about 1,500 (1,050 participating in the
health plan) and are growing quickly through acquisition
(unfortunately, carrying heavy risk).
Management had a strong desire to improve employee
satisfaction with the overall benefits, while controlling
future costs. The company’s benefits consultant was
able to focus on purchasing health care cheaper and at a
higher quality by (1) identifying the 3-5% of the population
that was absorbing 60% of the costs, (2) then putting
in place a health care advocacy approach and steerage

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CBIZ BizTipsVideos
mechanism* structured around a higher quality provider
or facility, and (3) designing a drug program that drove
down costs of the specialty spend by almost 70%, while
still allowing every member to procure their medication.
The company realized significant reductions in annual
spend. The full results at the end of 2020 were as follows:
Case Study 2
A 4,000-employee organization needed to manage
significant financial issues toward the middle of the
2019 fiscal year. To address the situation, a new three-
year benefits program was developed with incremental
changes, returning corresponding savings each year. The
CFO immediately turned to year three of the strategy and
stated, “This is where we want to be today!”
A more aggressive program similar to Case Study 1 was
developed, including health care advocacy and claim
steerage* with both medical and pharmaceutical benefits
– but with a focus on the 80% of the population incurring
100% of the spend. While the organization’s leadership
recognized the possibility of disruption in a traditional
health care model, in the end, fewer than 5% of the claims
had a “second touch” with an eventual 100% resolution
rate. This program resulted in an amazing $8.35M in
savings – $2.5M better than original projections.
Case Study #1
2019: Traditional
Carrier Strategy
2020: Enhanced
Purchasing Strategy
% Change
Claims Cost $11,547,034 $10,233,801 -12.83%
Stop Loss $496,249 $472,390 -4.9%
Administrative Fees $726,000 $688,887 -5.2%
Annual Spend $12,770,171 $11,395,078 -10.08%
PEPY Spend $12,138.95 $10,831.82 -10.08%
Innovation’s Win-Win Factor
Employee benefits cost containment no longer has to be
painful; in fact, it can be a key feature of a company’s
overall operating strategy, returning real benefits in
employee recruitment, retention and satisfaction. In
both case studies, the employee plan designs were
unchanged. In other words, employees saw no change
to deductibles, co-pays,
out-of-pocket maximums,
pharmacy copays, etc. Savings
were achieved through
steerage mechanisms on
how employees received their
care. Supported by effective
employee communications,
satisfaction among the
employees post-year-one
was far greater than in the
previous traditional model.
Additional Resources
■
Increases the credit rate from 50 to 70% of Re-
exerting Control over Supply Side of Health Care
to Control Costs (article)
■
Increases the credit rate from 50 to 70% of 2021
Employee Benefits Benchmark Report (download)
Your Team
Cole Harris is the Vice President of Sales and Marketing
for CBIZ Benefits Insurance of Tennessee. He sits
on the advisory board for all of the major medical
carriers. Cole specializes in the consultative approach
to analyzing current corporate strategies. Don’t hesitate
to reach out to Cole if you have questions about the
concepts in this article or to discuss other aspects of
employee benefits planning. You can reach him directly
at charris@cbiz.com or 865.251.5149.
Case Study #2
2019: Traditional
Carrier Strategy
2020: Enhanced
Purchasing Strategy
% Change
Claims Cost $17,281,074 $8,242,045 -51.25%
Stop Loss $1,330,307 $909,138 -31.66%
Administrative Fees $1,283,305 $757,802 -40.95%
Additional Vendor Fees $0 $1,444,471 _
Annual Spend $19,894,686 $11,535,456 -42.02%
PEPY Spend $7,605 $5,882 -22.66%
Health Plan Net
Promoter Score
17 86 +405.9%
%EquivalenttoMedicare 209% 132% -36.84%
DISCLAIMER: This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional
advice. This information is general in nature and may be affected by changes in law or in the interpretation of such laws. The reader
is advised to contact a professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in
connection with the use of this information and assumes no obligation to inform the reader of any changes in laws or other factors that
could affect the information contained herein.
* A steerage mechanism works
to direct members to high-quality,
affordable providers, rather than just
leaving members to blindly choose
from a list of in-network providers.

ManagingInsuranceCoverages
Costs–YourHandsAren’tTied!
E
ach year, property owners approach their insurance
brokers with a common question – are my insurance
premiums going up? No surprise to anyone, the
pandemic, civil unrest, economic uncertainty and an
abundance of disastrous weather events influenced
losses of over $1 billion in 2020, accelerating an
already hardening insurance marketplace – one that is
less friendly to insurance buyers. Reinsurance is more
expensive, capacity is decreasing with many providers
exiting the market, underwriters have become stricter
and premiums are on the rise for all insurance lines.
The Council of Insurance Agents Brokers (CIAB) Q1
2021 Commercial Property/Casualty Market Index
reports that premiums continued to rise across all-sized
accounts. The average increase in premium prices
was 10% in Q1 2021, the 14th consecutive quarter of
increased prices. Large accounts were most impacted,
with an average increase of 12.9%.
By mid-year you may be tired of hearing that “especially
this year,” business owners who educate themselves
on the trends that influence their insurance will have a
greater understanding of what can be done to influence
their insurance rates. But as renewals approach, it’s still
solid advice, and there are also some fairly standard
practices that will help you achieve your lowest total cost
of risk.
BY CBIZ INSURANCE SERVICES, INC.
Ensure Your Risk Profile and Data Are Accurate
A careful assessment of unique exposures and
establishing effective, well-documented risk management
practices can make an organization more attractive to
insurance carriers. A robust risk management program
reduces the likelihood of expensive claims and minimizes
unexpected event losses.
Another important consideration is the quality of your
data. Property insurance underwriters want a complete
and accurate picture of the property they’re insuring.
Properly representing your risk (and risk management
policies) to the carrier will directly affect the rates and
terms offered.
The condition of the property and surrounding
neighborhood, age, deferred maintenance, environmental
issues, ingress/egress issues, vacancies and other
factors specific to an industry sector all impact
underwriting (and property tax assessments, by the way).
Review and confirm key statistics like square footage,
statement of value (SOV) and construction occupancy
protection exposure (COPE) data. If you are more than
five years out from your last appraisal and you continue
to use Consumer Price Index (CPI) adjustments on your
SOV, you risk misstating real property value. Adjustments
for CPI do not take into account local changes, such as
increased climate activity, economic/social changes
that cause building costs to increase/decrease, and

CBIZ BizTipsVideos
exhaustion of local resources that escalate the cost of
obtaining raw material.
By simply cleaning up your key information elements and
presenting accurate appraised values, you’ll help better
position your organization for the best possible coverage
rates and terms.
2021 Trends Alert
Insurance experts often examine how outside influences
and trends affect the insurance marketplace, and
businesses should follow suit to determine what factors
impact their insurance coverage. For 2021, there are a
number of sweeping market developments to consider.
Rates continue to be affected by “social inflation” (i.e.,
the impact of societal trends and views toward increased
litigation, broader contract interpretations, plaintiff-
friendly legal decisions and larger jury awards).
Extreme weather events, such as hurricanes, tornadoes,
hailstorms and wildfires continue to make headlines as
they become increasingly devastating and costly. Many
experts believe severe storms, extreme temperatures,
wildfires and flooding are the new norm. As these
catastrophes become more frequent, the insurance
industry will need to create innovative solutions to keep
up with weather-related losses. Expect to see more
emphasis around weather readiness, especially from an
insurer’s perspective.
Social movements that have risen to prominence in the
last decade and throughout 2020 are expected to affect
organizations for years to come. Nationwide protests,
civil unrest regarding racial equality and diversity within
the workforce, the #MeToo movement and the Asian
American and Pacific Islander heritage movement all
continue the trend of increased corporate accountability
in regard to social issues. For insurers, this raises the risk
of employment-related claims, alleging discrimination,
harassment or other forms of unfair treatment.
Policyholders who take the necessary actions to avoid
such claims by documenting workplace inclusivity,
diversity and social awareness initiatives may reap the
benefits of reduced premiums.
And of course, in 2020 and into 2021, COVID-19 has
led to many complications in the insurance market –
additional exposures across practically every line of
coverage, elevated underwriting losses and various
policy restriction developments. Although the vaccine
offers hope for eventual return to normalcy, many of the
pandemic’s ramifications are expected to continue for
years to come.
Underwriter scrutiny is at an all-time high. Every aspect
of policyholders’ risk profiles is being closely reviewed. In (Continued on page 7)
Timely Resources and Insights
News from the NAM
How to Talk to Vaccine-Hesitant Workers. Online
here.
“RETHINK” Presents Lessons for Manufacturing
Leaders. Accelerating the Adoption of
Manufacturing 4.0. Virtual event 6/22-6/24; virtual
plant tour 6/29. More info here.
NAM Lays Out ESG Disclosure Priorities.
Manufacturers are deeply involved in a wide range
of environmental, social and governance (ESG)
issues. Online here.
COVID Accelerated Recovery Resource
Center. This resource center brings together
solutions for businesses ready to accelerate
recovery. Access it here.
What CFOs Should Know About Their Cyber
Programs. With today’s threats to information
security, cybersecurity risks should be considered
part of an overall enterprise risk management
program for any business. Read full article here.
COVID-19 Testing Requires Informed Consent.
CDC’s new guidance for employers who choose to
incorporate workplace COVID-19 testing as part of
their COVID-19 protocols. Find it here.
A Manufacturer’s Property Insurance Pre-Renewal
Data Checklist. Download the checklist here.
Employment Practices Liability Scorecard. Better
understand the level of risk your organization faces
on a daily basis in relation to employment practices
liability. Available here.
fact, some underwriters are altogether refusing to consider
businesses with elevated COVID-19 exposures. While
deductible and premium costs are rising, capacity has
decreased with more stringent coverage conditions and
policy exclusions emerging for pandemic-related losses.
Overall, COVID-19 has significantly tested the
preparedness of businesses everywhere. Moving forward,
it is critical to take a hard look at business continuity and
disaster response plans. Also, partner with experts who
understand your industry’s daily risks and can help you
prepare for the unexpected.
Cyber attacks are now in the urgent risk category
across all industries and the attack range is growing.
Cybercriminals are using an ever-evolving and
sophisticated array of tactics, targeting employees at all

levels of and roles at an organization to gain access to
your data. The manufacturing and distribution sectors
have continued to implement highly sophisticated
technology solutions to manage both process and
logistics. While these solutions offer critical benefits,
they also present new vulnerabilities to cyberattacks.
Underwriters have taken note. Mitigation should involve
both cyber risk management and insurance coverage.
2021 Market Outlook Forecast by Line of Coverage
Below is a high-level overview of 2021 forecasted rate
trends per line of coverage. For detailed insights by line
Line of Coverage Forecast Trends*
Commercial Property
■ Non-CAT exposed: +5% to +20%
■ CAT exposed: +10% to +25%
■ CAT exposed with poor loss history: +25% to +40%
General Liability ■ Overall: +5% to +15%
Commercial Auto ■ Overall: +5% to +25%
Workers’ Compensation ■ Overall: Flat to +5%
Cyber Liability ■ Overall: +10% to +30%
Directors Officers Liability
■ Public entities: +20% to +70% or more
■ Private/non-profit entities: +10% to +50%
Employment Practices Liability ■ Overall: +10% to +30%
Excess Umbrella Liability
■ High risk: +50% or more
■ Low to moderate risk: +30% or more
of coverage, access CBIZ’s 2021 Property Casualty
Market Outlook.
■ What’s Next Podcast Episode 15: How COVID-19
Affects Future Enterprise Risk Planning
■ What’s Next Podcast Episode 12: The Rising Cost
of Insurance Insurable Values
■ Strive To Be the Risk Profile the Underwriters Want
to See (article)
■ Six Steps to Minimize Business Interruptions
(article)
■ Revisiting Your Plan for the
Unexpected (article)
■ Cybersecurity Quick
Assessment (2-minute
online test of your cyber
threat readiness)
Your Team
You need more than basic
commercial insurance to protect
your business assets. That is why
our risk consultants partner with
you to develop a plan tailored to
cover your particular exposures. If
you have questions about your risk
profile or your current coverage,
contact the CBIZ Insurance Services
Manufacturing Team or your
CBIZ advisor.
* Price forecasts are based on industry reports for individual lines of insurance. Forecasts are
subject to change and are not a guarantee of premium rates. Insurance premiums are determined
by a multitude of factors and differ per organization. These forecasts should be viewed as general
information and not insurance or legal advice.
M
ore than 90% of the world’s consumers live
outside the United States. With only 12% of the
U.S. gross domestic product (GDP) generated by
exports, it’s safe to say there is a lot of room for growth.
Companies that export grow faster (and 8.5% are less
likely to go out of business). U.S exports and foreign
direct investment supported 1.6 million jobs and more
than $350 billion in exports from 2018-2020.
If accessing a global market is a consideration for your
strategic growth plan, your first steps will be connecting
with the U.S. Commercial Service (USCS). This will
immediately give you access to unparalleled guidance in
market selection and sales channels for your product(s).
ReadytoGoGlobal?
TheU.S.Commercial
ServiceIsReadytoHelp
The USCS – part of the U.S. Department of Commerce’s
International Trade Administration – offers companies a
full range of expertise in international trade. Setting up
shop internationally could not be easier with the USCS’
help. You have the U.S. Government opening doors that
no one else in the world can open. Their unmatched
global network with trade experts in more than 80
countries can provide you with on-the-ground knowledge
and connections.
Getting Started
It’s always best to start with your USCS local international
trade specialist to discuss what makes sense for your
PAGE 7
CBIZ BizTipsVideos

products and connect you with
the right government resources.
With over 100 local offices
throughout the U.S. and offices
in the U.S. Embassies and
Consulates in over 80 countries
all over the world, the USCS
is ready to help your company
succeed. (U.S. locations)
(International locations)
Local office USCS staff will help
you develop your international
business strategy, choose the
best market for your product or service and evaluate
potential overseas business partners. You will have
access to the latest market intelligence by industry – the
extraction, manufacturing, service and knowledge-based
industries, sectors and sub-sectors that drive the global
economy. (Industry Teams)
And talk about full service, your USCS specialist can
conduct a virtual international partner search, run
background checks on potential partner companies and
make strategic introductions.
Check out USCS’s webpage for a short video and links to
introductory information for U.S. exporters.
Access the World of eCommerce
Whether you are currently exporting or newly entering the
global scene, a sound digital strategy will be crucial to
establishing an ecommerce sales channel and increasing
your brand awareness in countries around the world.
USCS walks you through a 5-step international digital
strategy: (1) define your digital objectives and strategy, (2)
search engine and mobile optimization, (3) internal needs
review (your existing infrastructure), (4) choose the right
channel mix and (5) establish KPIs to maximize ROI and
conversion rate.
The USCS “website globalization review” gap analysis
will take a quick snapshot of your website to see what
you are doing well, what needs improvement in terms of
keywords and metadata, and what’s appealing to foreign
buyers. It will identify areas for technical and “business
process” improvement and can connect you with service
providers that can fix those areas identified as needing
improvement.
The review of your digital infrastructure captures insights
informed by the leading challenges for manufacturer
B2B ecommerce (e.g., limited product data, inaccurate
inventory information, check-out processes too
complicated, inability to order from previously orders or
track orders, among others).
Their seasoned professionals
will help identify and evaluate
opportunities offered by
various sales channels –
your website, social
media, online marketplaces and
selling to third-party, in-country
distributors. And of course, they
will help you develop dashboards
to monitor your KPIs.
Learn more about global
ecommerce digital strategy
here and explore the USCS full
range of ecommerce support
and resources online, including
virtual trade shows, grant funding, and digital policy and
regulatory issues.
Success Stories Tell the Tale Best
The U.S. Commercial Service is but one department of
the U.S. International Trade Administration that stands
ready to help you make that jump to global markets.
If you have even just briefly checked out the various
links provided in this article you’ve begun to grasp the
incredible range of service and support available to
manufacturers by this government agency. But nothing
tells a story like an actual success story. Learn how USCS
helped Cincinnati Crane Hoist raise its global sales and
boosted Johnny Rockets’ sales to more than 12 countries.
Real People, Ready to Help
As financial and business advisors to over 5,000 small
and mid-sized manufacturers, CBIZ is committed to
contributing to the strength, vitality and overall success
of our clients by providing access to resources, as well as
through direct service. With that as our goal we maintain
membership in the National Association of Manufacturers
(NAM) so we can participate in industry-focused
conversations and better understand sector challenges
and best practices.
This article shares a bit of the content presented in
NAM’s recent “Global Sales for Manufacturers in a Virtual
Environment” webinar. Should it interest you, we and
NAM invite you to sit in on the entire recording, accessible
here. Additionally, if you are interested in receiving
more information or need near-term assistance with
global commerce initiatives and would like your contact
information shared with the relevant federal partner, feel
free to complete the survey (provided here) to indicate
your interest in various federal resources.
And finally, as always, CBIZ business advisors are ready to
talk with you about your plans for growth, whether global
or domestic, and management of your financial, employee
and risk challenges. Connect with your CBIZ advisor or
locate a local professional here.
PAGE 8
CBIZ BizTipsVideos

SupplyChainChallenges
BecomeFullBlownRisks
I
n 1990, the U.S. made 37% of the world’s chips and
microelectronics. That number today is just 12%,
according to an industry report. The U.S. reliance
on outsourcing chip-making to foreign manufacturers
made sense when distribution was no problem since
it’s cheaper and there is less regulation outside of the
U.S. But supply chain challenges and shifting consumer
demands for products like cars and electronics during
COVID-19 contributed to the current chip deficit. The
National Association of Manufacturing’s Director of
Innovation Policy, Stephanie Hall, explained recently
that the shortage is reverberating throughout the
manufacturing supply chain, causing problems for
manufacturers in all sectors. (See Manufacturers Take on
Semiconductor Shortage.)
Those shortages are shining light on the risks of
depending on foreign chipmakers. Recognizing the
economic and national security benefits of ramping
up U.S. chip production, U.S. Commerce Secretary
Gina Raimondo recently announced federal incentives
to boost domestic chip production that could result
in seven to ten new U.S. semiconductor factories,
according to Reuters. The construction would be
supported by $52 billion in new federal funding for
semiconductor RD and production, part of bipartisan
legislation working its way through Congress.
But microelectronics and chips aren’t the only shortages
resulting from supply chain disruptions – lumber,
metals, steel, resins, chlorine, and gasoline are prime
examples. In the last year, production and shipping
have been impacted by natural disasters (earthquake,
storms, drought and fire). Global competition for
materials has been heightened well beyond the norm.

Logistical issues (e.g., shortage of shipping containers,
blockage of the Suez Canal) have contributed to delays in
delivery of essential materials, parts and products that
have impacted production. Manufacturers are having
difficulty keeping up with demand.
The warning bells are ringing loud and clear. The sector
as a whole must reexamine supply chain strategies,
contingency planning, risk management and mitigation.
Gaining visibility into suppliers’ and sub-suppliers’
production, leveraging technology for B2B integration
(connected platforms) and data sharing can serve as
early warning systems going forward.
What are immediate risks and mitigation strategies?
Analyze and prepare for contract risk. Manufacturers
and distributors unable to meet contract delivery dates or
volume commitments are in the crosshairs of risk. Taking
a fresh look at commercial contracts is a first step toward
recognizing and mitigating vulnerabilities. Analyze your
contracts, with support from your risk manager and legal
counsel, with an eye toward provisions that can impact
your rights in the event of an unexpected occurrence or
shortage. Specifically --
■ Consider how to allocate risk under the contract
■ Consider risk assessment for existing long term
agreements (LTAs) and strategic suppliers
■ Involve supplier/contract managers in all aspects
■ Consider past issues, disputes or breaches
■ Carefully consider “red flags” – delivery,
warranty, indemnity, limitation of liability and
force majeure language
Force majeure. The term force majeure is French for
“superior force.” Force majeure clauses are common
business-related contractual provisions. They provide
for a suspension or cancellation of a company’s
performance of obligations under the contract should
an extraordinary event occur that is beyond the control
of either party. Force majeure generally describes such
uncontrollable events that are not the fault of either
party and that make it extremely difficult, or impossible,
to carry out normal business (e.g., war or extreme
weather). Prior to entering into a contract, it’s critical
to ensure the triggers for force majeure are not too
restrictive, and that you have an understanding of what
would and would not trigger force majeure.
Time-critical and other sensitive contracts are often
drafted to limit the shield of the force majeure
clause where a party does not take reasonable
steps (or specific precautions) to prevent or limit the
effects of the outside interference, either when they
become likely or when they actually occur. Contract
nonperformance as a result of a cyberattack may be
a prime case in point. Would a customer regard such
an attack as a major event absolving the supplier from
delivery of an order, or would this be an event that
could have been reasonably prevented or otherwise
mitigated by appropriate systems and controls?

Invest in cyber risk assessment and management.
The expanded remote work environments and increased
dependence on technology have heightened the risk of
cyberattacks and hacking. In a recent letter addressed
to corporate executives and business leaders, the White
House emphasized that bolstering the nation’s resilience
against cyberattacks is a main priority for President Joe
Biden’s administration and is urging businesses to take
the evolving ransomware cyber threat seriously.
These attacks—which entail a cybercriminal deploying
malicious software to compromise a business’s network
or sensitive data and demand a large payment be made
before restoring this technology or information—have
quickly become a growing concern across industry lines.
In fact, the latest research provides that ransomware
attacks have increased by nearly 150% in the past year
alone, with the median ransom payment demand totaling
$178,000 and the average overall loss from such an
attack exceeding $1 million.
Invest in cyber assessment and cybersecurity measures.
Utilize the federal government’s best practices outlined in
the Biden administration’s Executive Order on Improving
the Nation’s Cybersecurity. Implement multifactor
authentication on all workplace technology and provide
employee training to spot phishing, scams and hacking.
Coordinate your efforts with your broker to incorporate
cyber liability insurance in your insurance program.
Establish lines of communication. Regardless of whether
a contract includes a force majeure clause, companies
might find success in managing unforeseen events by
simply contacting suppliers to directly to explain and
discuss delays or other issues. You may determine
that you can alter your agreement to allow for future
performance by agreeing on modified terms. A clear
line of communication can ensure everyone is on the
same page, and the individuals and companies involved
typically appreciate a proactive approach during a
particularly tumultuous period.
Be prepared for disruption. While business disruption
may be unavoidable, having a plan in place will help your
organization manage any ensuing chaos and minimize
contract nonperformance. A strong, functional disaster
and continuity approach not only helps your company
survive the next unexpected event, but it could also
help you make up ground on your competition during
extraordinary times. There are five key areas to consider
when preparing for the next major disruption. These
include quantifying the risk of a business disruption,
planning for impact to physical structures and operations,
preparing for the financial impact, prioritizing insurance
coverage, and having the technology to respond quickly.
(See Safeguarding Against the Unexpected.)
Be prepared for litigation. Implementing a program
of “dispute readiness” will support your efforts to
defray culpability and liability and may strengthen your
contractual processes during non-eventual times.
■ Train your employees for the event that litigation
becomes inevitable
■ Know what documents constitute your contract
■ Know whether your contract contains notice
provisions, arbitration clauses, forum selection
clauses, and/or venue clauses
■ Understand the concept of “building a record” with
respect to the ongoing supply chain dispute
■ Identify key members of the business team with
information regarding a dispute and prepare a
chronology of events
■ Do not put anything in an email (or text or chat) that
you would not want to be read aloud in court
■ When working with an attorney, understand
when attorney-client privilege does not attach to
communications and documents.
■ Track all damages and costs related to supply
chain issues.
Bottom Line
Supply chain disruptions are no longer an unexpected
event. Companies are coming to grips with the fact that
these disruptions have become and may remain
a consistent feature of doing business in the
manufacturing and distribution sectors. The risk of
supply chain disruption or delay must be considered and
incorporated into procurement, production, logistics and
contract fulfillment planning.
Properly aligning staff and deploying technology to the
supply chain function can be key. Putting contracts under
the supply chain function, engaging in collaborative
strategic sourcing and establishing alliances with key
suppliers all contribute to ensuring preparedness for
unexpected events.
Supply chain disruption is a risk in modern manufacturing.
Whereas risk mitigation strategies are often tightly tied
to insurance and liability policies, managing risk is a key
organizational function requiring personnel, policies and
preparation. Working closely with sales and procurement
to ensure active supplier management and diversification
of supply is now the gold standard. Training key employees
on best practices for procurement, contracting and
preparing for litigation will put you in the best position to
be successful in any future dispute.
This article was compiled by the CBIZ editorial staff drawing on news reports and a National Association
of Manufacturers webinar presented by Foley Lardner LLP, attorneys at law.

CBIZ Manufacturing & Distribution Quarterly Newsletter – June 2021

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CBIZ Manufacturing & Distribution Quarterly Newsletter – June 2021