Featured Story: What If Your Supply Chain Breaks?

Sunday, 14 October 2007 18:00

What If Your Supply Chain Breaks?

Art Figueroa

The global supply chain as we know it today is modeled towards an overemphasis on cost-cutting, lean operations, outsourcing, widely dispersed suppliers for components, and just-in-time production schedules. While today’s leaner, more demand-driven model has removed much of the inventory excess from supply chains, a negative effect is the greater vulnerability to natural or man-made disruptions. Such events have forced corporations throughout the world to closely examine their ability to withstand and respond to ‘disaster’ events in a manner that minimizes impact to their supply chains.

Types of potential disruptions to the supply chain are numerous, but can be classified into three major categories:  operational events, such as labor strikes, mass protests, product theft, equipment malfunctions, and failures in the supply chain; natural events, such as hurricanes, earthquakes, floods, fire, power outages, and public health epidemics; and terrorism or political events, such as the catastrophic events of September 11, 2001, mail bombs, trade wars and tariffs, economic crises such as the Asian financial crisis of 1997, or military conflict.

The impact of disruptions to the supply chain can be categorized into direct and indirect consequences. Some direct consequences of supply chain disruptions are delays in the delivery of product, increased costs of supplies, reduced bargaining power, disruption in product and service flows, uncertainty as to quantity or quality of product, traffic and port congestion, longer cycle times, and diminished return on sales. Some indirect consequences of such events are: lower service levels, disappointed customers, loss of credibility, loss of future sales, loss of market share, and higher insurance premiums. 

Furthermore, while an entire industry may realize lower revenues, companies that are ill-prepared for supply chain disruptions will suffer the most dramatic effects initially. Major supply chain disruptions have far-reaching effects, such that even after normal operations are restored, there is still a significant difference in pre- and post-disaster economic performance levels.

Considering that political and economic environments are highly dynamic, today’s leading companies maintain their positions by ensuring that their supply chains are flexible enough to overcome disruptions immediately and by mitigating risk. A company can mitigate risk by first identifying potential vulnerabilities to the supply chain and second by having a sound business continuity plans in place.

The most effective means to manage supply chain disruptions is to prevent them from negatively affecting your business flow.  Here are some questions to ask within your own organization and of your key suppliers:

• Does the company have a sound business continuity/disaster recovery plan in place?
• Are the business continuity plans reviewed periodically throughout the course of the year, with updates or revisions communicated to all relevant parties?
• Are the plans sufficiently broad, covering a wide range of contingencies such as disaster recovery, employee safety, the retrieval of backup business data, emergency communications, relocation of business operations and key employees to alternative locations outside the impacted area, alternate transportation methods, and the sourcing of goods from alternate suppliers?
• Have the plans been adopted on a company wide basis?
• Do the plans receive the full support of the executive management team?

Disruptions to the supply chain can be mitigated by implementing flexible and responsive plans. Smith & Associates’ customers can rest assured that Smith’s Emergency Response Planning/Business Continuity team maintains a thorough and up-to-date plan for minimizing the impact of supply chain disruptions and ensuring the continuity of business flows.

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