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Disaster Planning for Supply Chain Distruptions

Posted on Thu, Jan 16, 2014

Given the current state of the U.S. infrastructure, an increase in targeted cyber hacking, and the continual occurrence of high-risk scenarios, ensuring supply chain stability should be part of an overall business continuity effort. Profitable operational productivity cannot tolerate unreliable and fleeting supply chains. Companies must continually evaluate Tier 1 suppliers, and establish subsequent tiers for alternate means of necessary resources, materials, and key business components.

The American Productivity & Quality Center (APOC) conducted a survey to examine the concern over supply chain stability involving the following external risk factors:

  • High-impact natural disasters, such as major tsunamis, earthquakes, volcanoes, or floods
  • Extreme weather, such as devastating droughts, wildfires, or cyclones
  • Political turmoil in vitally important world regions

The survey revealed that 83% of organizations surveyed experienced an unexpected supply chain disruption over the previous 24 months.  26% of the organizations revealed that well-managed business continuity plans (BCPs) met their needs. However, 74% of the respondents did not have a business continuity plan that addressed the disruption. Like many others, these organizations were exposed to the disruption of physical assets in their supply chain, whether at a company-owned facility or at a key vendor’s facility.

According to APOC, supply chain disruptions can lead to tenuous operational circumstances. Aside from the straightforward financial impacts attributed to supply chain disjunctions, a break in the supply chain continuity can damage an organization’s reputation and customer relationships. “An organization’s reputation usually demonstrates a certain level of quality, resulting in the ability to command a higher product or service price. If a company’s reputation lessens due to poor risk management, then so does its ability to command a certain price.” (APOC, pg3)

Successful evaluation of supply chain risks in conjunction with an exercised business continuity plan can help improve mitigation and reduce the recovery time from an unforeseen disruption. Emergency managers should pre-identify critical business processes and the resources and equipment necessary for them to be  functional. Through this process, alternatives can be explored and a business continuity plan can be established that reduces the impacts of infrastructure disorder and associated supply chain disruptions.

Site-specific recovery strategies should be developed with the assumption that the supply chain disruption occurred when the services or output are at the highest level and most critical point. By creating continuity plans for the peak business cycle, critical recovery time objectives can be established to minimize impacts, even in the most productive periods of operations.

As a result of the survey, APOC established recommendations to ensure adequate risk mitigation of supply chains:

1. IDENTIFY SUPPLY CHAIN RISK: Identified risks  should be documented and made  visible to company management.

2. ASSESS POTENTIAL IMPACT: Each risk should be assessed for severity and probability.

3. PLAN HOW TO RESPOND TO RISKS: Companies must prioritize planning and establish a business continuity or recovery plan to minimize supply chain downtime. Plans should incorporate attainable recovery time objectives through proven processes and procedures.

4. MONITOR: Monitoring internal and external supply chain risks can allow companies to evaluate new or altered threats, assess potential impacts, and mitigate any potential negative changes. Through continually monitoring, companies can minimize potential impacts, allowing for a competitive advantage over others without a risk management plan.

5. UTILIZE NECESSARY RESOURCES: Support staff should be included in risk management and response planning processes to ensure all available resources are incorporated. An expert consultant can provide an analysis with an external perspective, often identifying risks and potential mitigation measures that were not detected internally.

The APQC is a member-based nonprofit and one of the world’s leading proponents of business benchmarking, best practices, and knowledge management research.

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Tags: Resiliency, Business Risk, Supply Chain, Business Continuity Plan, Disaster Recovery, Business Disruption