For the past 10 years, many companies have worked hard to streamline their supply chains. They've whittled down the field and built relationships with only the most competent suppliers. And many have gotten the desired result—supply chains that run like clockwork, reducing costs and bolstering customer service. But it turns out there's a downside—greater risk.

Now, your business has fewer suppliers to count on, points out Chris D. Mahoney, senior vice president of UPS Global Transportation Services in Inside Supply Management. And your suppliers' supply chains are leaner as well, opening the door to even more risk. That's why many of us need to be concerned about disasters, skirmishes and military events happening in other parts of the globe. According to statistics, a crisis will hit large companies every four to five years. And 73% of businesses that suffer a disruption of 10 or more days will shut down or experience considerable, long-term negative repercussions, says Crisis Management International.

Enter business continuity planning. According to Mahoney's article, while disaster recovery plans address what to do during emergency situations, business continuity plans focus on alleviating supply chain risk. They pinpoint the essential operations that must go on despite the occurrence of any kind of disruptive force. These include such critical areas as production, distribution, order management, invoicing and accounts receivable, and customer management.

Aside from mitigating risk, business continuity plans outline actions to take in order to recover from all types of disruptions, ranging from natural disasters to product failure. For instance, they factor in operational capacity, structure decision hierarchies, delineate a framework for making sure that demand is met, and set the maximum acceptable downtime for each business division.

To get an idea of what your business continuity plan must address and to ascertain if your supply chain is risk-resistant, try answering the following questions:

• If your main distribution center or plant sustained substantial damage, how much time would it take you to bounce back?

• How much inventory would you lose and what are the costs of recouping it?

• If inventory loss is sizeable, how rapidly can you adjust production lines and plans to accommodate new production goals?

• Can key suppliers ramp up swiftly? Or, if a product is de-emphasized, how will they handle the revenue loss?

• How much revenue would your company stand to lose if order taking and filling were to come to a halt for a week? Two weeks? A month?

• What are the legal and financial ramifications of being unable to satisfy contracts?

• How will your market share and brand be affected in the long-term?

• What sales and marketing initiatives will you need to adopt to handle customers, recoup revenues, and reclaim lost market share and goodwill?

According to Mahoney, at UPS they rely on a five-stage methodology to cover each element of business continuity planning—risk management, supply chain integration and stakeholder management, and network capacity.

First, they assess the current state of operations by interviewing risk management, insurance and finance, supply chain stakeholders and network staff. Second, they pinpoint significant threats, weaknesses and major risks. During this step, they ascertain the potential impact of disruptions and how to address them. Third, they list and select risk mitigation alternatives and contingencies. Fourth, they choose suitable mitigation proposals and plot out ways to deploy them. Finally, they set up maintenance and detection processes as well as verify business continuity plans.

While the whole process may initially seem intimidating, Mahoney says that it can be done promptly and effectively with a strong team, preferably one that is cross-functional. He also suggests testing your business continuity plans on a regular basis and getting your suppliers to verify theirs frequently as well. Indeed, business continuity planning is not just a one-time effort, he points out, but an ongoing and evolving process.

Source:

Making Your Supply Chain Risk-Resistant
Chris D. Mahoney
Inside Supply Management®, October 2004
www.ism.ws/Pubs/ISMMag/100406.cfm