Coping With Disaster

While spending time and resources on something that hasn't happened yet might not seem like a priority, readying your supply chain for the impact of natural disasters or terrorism is a must. Read on to find the best ways to prepare.

How prepared is your business to handle a disaster? Would you be able to continue production in the event of a major natural disaster, or another terrorist attack? And what if your supplier had its operations interrupted – where would that leave you?

Given the current geopolitical climate, these questions have to be asked. So it’s no surprise that supply chain risk management (SCRM) is becoming an increasingly important part of many manufacturers' operations.

According to a report this month from AMR Research, "Managing Risk in the Supply Chain - A Quantitative Study," 46 percent of firms surveyed plan to implement or evaluate SCRM technology in the next 12 to 24 months, and 54 percent plan to increase their SCRM budgets over the next 12 months.

Meanwhile, an October 2005 survey of small businesses conducted by the Advertising Council revealed that although 92 percent of respondents said it is very important or somewhat important for businesses to take steps to prepare for a catastrophic disaster, only 39 percent said their company has an emergency plan in place.

To help small and medium-sized businesses understand the need for emergency preparedness, the U.S. Department of Homeland Security and the Advertising Council launched the Ready Business campaign in 2004.

"There are three steps the campaign encourages business managers to do when preparing an emergency plan," said Heather Blanchard, deputy director of Ready Business. They are: Plan to stay in business, talk to your employees, and protect your investment.

Many small to mid-size manufacturers are less able to handle disasters and/or disaster planning, noted Diana McClure, vice president and Director of Business Protection at the Institute for Business & Home Safety (IBHS), a non-profit organization that helps small to mid-sized businesses prepare for and recover from disasters.

"Sometimes these business owners are scared off by the prospect of putting a Business Continuity Plan (BCP) in place; they don’t know where to start or they don't have enough personnel to have a full-time emergency manager," McClure said. "So they do nothing at all, which is not good business practice."

As manufacturers, both large and small, experience more supply chain disruptions, they are realizing that a BCP will keep them up-and-running in the event of an emergency. Companies are also beginning to understand that their manufacturing quality depends on sound supply chain management.

"Especially for the way business is done now, with companies using lean manufacturing and JIT techniques, and keeping inventories low," said Mark Hillman, research director at AMR Research and one of the study's authors. "They need to know that they will have a continuous supply of materials and components from their supplier (or their supplier's supplier) if problems occur."

But risk management should not be viewed just as a plan to manage business interruptions; rather, having a BCP in place can help a company to manage its supply chain more effectively and ensure that new product introductions make it to market.

"Companies are developing a more holistic approach to manufacturing," explained Hillman. "When a manufacturer works on a risk management program first, they have contingencies in place so that nothing impedes the progress of a new product introduction or interrupts the supply chain."

McClure agrees that going through the BCP process is actually a useful task for a company, not just for disaster planning, "because as a company moves through the BCP process, it touches on all aspects of an organization – employees, operations, procedures."

To help with planning for emergencies, the IBHS offers an "Open for Business Toolkit" that helps the small business owner to assess his or her susceptibility to natural disasters and provides information on how to minimize damage. Another guide, "Getting Back to Business," offers business recovery tips for reorganizing after a disaster.

"It really is almost impossible to predict when most emergencies will happen," McClure said. "Many companies think, 'It can't happen here' or 'We would never have that problem in our plant,' but then when something does occur, they are caught off-guard and not prepared."

McClure offers several suggestions for emergency planning, such as keeping a list of every employee, vendor and supplier with alternative ways to contact them; looking for other locations where critical business functions can be performed; and making sure that someone will contact VIP customers to notify them of delayed shipments.

"Just by rethinking your plant's needs, thousands of dollars on lost inventory or injuries can be saved by spending a few dollars now," counsels McClure. “Think about what external circumstances could cause an interruption to your facility. If you are in a flood prone area and you know that the water would not normally rise above three feet, then make sure that all your materials or critical supplies are stored above the three foot mark."

And don't forget to have computer files backed-up on a regular basis, and not just on another in-house computer. "Preferably have computer files backed-up off-site, too," McClure said, "so you can have access to essential business information at any time."

Ready Business has a list of emergency planning measures categorized as "No Cost," "Under $500" and "More than $500." The ideas include creating an emergency contact list (no cost), buying fire extinguishers and smoke alarms (under $500) and providing emergency response training for employees (more than $500).

"A good BCP plan answers the question, 'How would we keep the business running in the event of an interruption,' " McClure said. "There will still be bills to pay, customers waiting for product shipments, and the employee payroll to be met - knowing ahead of time how these things will be handled in the event of an emergency can make all the difference in a company being able to recover successfully."

For more information on Ready Business, click here.

For more information on the Institute for Business & Home Safety (IBHS), ), click here.

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