Hurricanes, volcanos, riots and horsemeat, what next?
27 February 2013
Contingency plans can help you protect your supply chain from the next upheaval - whatever that may be - says Richard Powell, md at supply chain consultancy, Crimson & Co.
The recent horsemeat scandal has brought supply chain, and more specifically, procurement to the forefront of business leaders minds, leaving them questioning why these issues occur in the first instance, and what can be done to mitigate against these in the future.
However, it’s not just food retailers and suppliers who have been forced to re-evaluate recently: In 2011, the London riots caused huge disruption to the supply chain of Sony when a main distribution centre was set alight and last year saw adverse weather, including Hurricane Sandy and volcano eruptions cause disorder. So how do organisations ensure that they aren’t affected by the unexpected?
Well-developed contingency plans can be the differentiator between profit and loss and the on-going viability of a business. It should be considered be all manufacturers, suppliers and distributors, who should analyse risks and plan accordingly to avoid any disruption.
The chances that a supply chain will face some form of disruption is much higher than many organisations will recognise or acknowledge. Companies therefore need to evaluate as many threats as possible and weigh up the risks faced.
In today’s complex, global supply chains, business risk is everywhere: long transit times from low-cost countries are coupled with ‘just in time’ planning, allowing little scope for slippage; manufacturing sites are rationalised to as small a number as possible to reduce cost and drive economies of scale; suppliers are rationalised to minimise management effort and leverage buying power. Against a background of global brand requirements, currency fluctuations and commodity price volatility, as well as political instability, environmental issues and visibility issues, a lot can go wrong very quickly if the right steps aren’t taken.
Businesses should first address contingency planning by identifying the potential risks, asses them, quantify them, prioritise them, and finally, determine what the contingency plans will be.
The contingency planning process will evaluate and identify the capabilities of suppliers to meet the company's requirements in the event of a disruption. Supplier’s business continuity plans therefore also need to be reviewed to check that suppliers have evaluated their risks, and that their continuity plans are complete too.
The assessment approach needs to determine how long it would take to produce again at certain rates, identify alternatives, i.e. can we outsource or move production to another location, and finally the plans should be tested with those responsible for executing them. This should not be a one off process and the plans should instead be tested regularly to ensure that they are current, relevant, and take changing business conditions into account.
In light of recent events, I suspect many more companies will be beginning to put these processes in place, and had these have been in place for many prior to the horsemeat scandal, they would’ve been able to switch to another supplier as soon as the revelations came to light.
Taking a comprehensive view of supply chain risk means taking a longer-term view, accepting that ‘bad’ things will happen, and making sure your business is in a better position than competitors when it does. Typical benefits include more robust supply chains, improved service levels, better product launches and reduced focus on non-value adding crisis resolution.