Not to nitpick but managing supply-chain risk is a lot more complicated than insurance.
In most cases insurance is going to be more expensive than simply eating the cost of breakages, it's really something you have to protect against rare-and-expensive events.
If you are high volume/low cost or low volume/high cost this can be a very different situation than medium volume/medium cost in terms of impact.
> Not to nitpick but managing supply-chain risk is a lot more complicated than insurance.
I agree. I manage an ERP system at a pharma-manufacturer. I added a YMMV precisely because of the different situation - different impact reasons. My main point was:
Incumbent Sales Price SP1 = Cost of (Base + Risk + CYA-buffers) + Predetermined Margin
Incumbent Profits PR1 = SP1 - Total Actual Cost
Startups Sales Price SP2 = Cost of (Base + Risk) + Predetermined Margin
Startups Profits PR2 = SP2 - Total Actual Cost
If you assume Cost of (Base + Risk) to be relatively on-par then SP1 > SP2 because SP1 includes CYA-buffers. The problem is that when incumbents become lean and shave off overhead, they can continue to command high prices due to entrenched contracts and make a much larger profits. This reinforces their position in the industry, making it harder for startups to compete.
Sidenote: While in a perfectly competitive market, the sales price should be determined by the intersection of supply and demand curves, instead of being a predetermined markup based on cost, in most contract manufacturing environments, all the costs are known, markups are expected, and thoroughly negotiated.
In most cases insurance is going to be more expensive than simply eating the cost of breakages, it's really something you have to protect against rare-and-expensive events.
If you are high volume/low cost or low volume/high cost this can be a very different situation than medium volume/medium cost in terms of impact.