ContinuitySA advises procurement departments to check out their suppliers business continuity plans

Supply chains today are extremely complex—and as they are now global, they are extremely long as well.

May 22, 2012

“No business continuity plan, no business”. That’s what your procurement department should be saying to all your suppliers—but are they?

By Derek Taylor, business development manager, ContinuitySA

Supply chains today are extremely complex—and as they are now global, they are extremely long as well. This scope and complexity creates a web of interdependencies that is hard to track. Indeed, many companies live in ignorance of the risk posed by one part of their supply chain… until disaster strikes.

Supply chains are multilevel and comprise the flow of goods and materials, information and money within and between organisations. The outward manifestation of supply chain is the physical transport and distribution networks that move goods from one point to another, but as important are the communication networks across which information passes. Today’s supply chains, with their emphasis on efficiencies and just-in-time delivery are hugely dependent on these less visible networks.

Watch for the risks
Today’s supply chains face three broad types of risk. The first of these is the loss of power. Many outlets at the one end of the supply chain simply don’t have backup generators; during a power outage, they cannot transact with customers given today’s payment methodologies. In addition, ordering systems are increasingly linked to electronic tills, so loss of power affects replenishment. And, of course, stores selling perishables would be severely affected by extended loss of power to refrigeration units.

The second major category of risk is loss of fuel. One immediate result is loss of transport, which means that the movement of goods and people is halted—and consider that the average supermarket might be replenished up to 12 or more times a week. Perishable goods in transit would be at risk and, of course, so would backup power-generation plans, which typically rely on diesel generators.

The final category is loss of people, primarily through industrial action and pandemics. Obviously, without people, operations are compromised or even impossible.

Each of these losses can affect any company within the supply chain, with knock-on effects of greater or lesser severity.

But is it in the budget
Even from this brief description, it’s clear that even the simplest supply chain has multiple vulnerabilities, the number of which grows exponentially in relation to the supply chain’s complexity and scope.

The case of a local producer of specialty mushrooms to the European market demonstrates some of these interdependences. After listing on the stock exchange and a year’s stellar growth, the company folded. One reason was poor harvesting practices, but the other two concerned loss of power and loss of transport. Loss of power meant that the temperature controls necessary for mushroom growth broke down, and port congestion meant that the perishable product spoiled.

Even more to the point is Landrover which, in the early 2000s found itself unable to produce its best-selling Discovery model because the company that supplied the chassis went broke. The chassis manufacturer’s failure was the result of an ill-advised foreign venture that had nothing to do with its business with Landrover. Landrover learned the hard way that the failure of single point of dependency is catastrophic: luckily, there was a happy ending and the company was able to recover.

Learn the lessons
My point is that the interdependencies within a supply chain can be so complex that a business can find itself at risk from something totally unexpected somewhere in a complex web of business partners. Conversely, a business might itself be so important in a supply chain that its failure would put the whole chain at risk.

Your own company’s continuity thus depends on the continuity of the entire supply chain. It’s thus very important to know your suppliers well, especially those that are important. In fact, I believe that companies should not procure from suppliers without ensuring that an effective and current business continuity plan is in place: “No business continuity plan, no business,” should be phrase on your procurement staff’s lips!

In other words, your business continuity plan must include credible business continuity plans for all suppliers as well—their success is your success, but their failure is also your failure.