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Supply chain continuity insights

Robin Gaddum shares his experiences of supply chain business continuity management.

Starting my career in manufacturing, I could not help but take an early interest in supply chain continuity and I have retained and developed that interest over the last 25 years. Supplies are critical in manufacturing to create products. Of course, suppliers of services are important too; without them production machinery could not be maintained or products shipped to customers.

Moving from manufacturing to the services sector in the 1990s, I still found supply chain dependencies. There is also a trend, continuing today, increasing supplier dependency as firms focus on core activities and outsource an increasing range of business processes viewed as a commodity service or a distraction, such as payroll, legal counsel, call centre operations, and so on. Whilst this interdependence is increasing, globalisation and the availability of fast, cheap, relatively reliable communications via the Internet offers organizations an irresistible temptation to extend supply chains and drive supply chain efficiency, which exposes the supply chain to new and increasing risks of interruption.

With a significant proportion of most organizations’ expenditure now embedded in a complex, stretched supply chain, recent events brought the associated risks to management attention, such as the earthquake and tsunami affecting Japanese manufacturing, volcanic ash clouds disrupting air transport, the economic situation triggering civil instability in a number of countries, and so on.

The importance of supply chain continuity is rising and yet there is little useful guidance for businesses explaining how to tackle continuity in the supply chain. Thankfully, the BSI has a working group, of which I am a member, developing supply chain continuity guidance for publication probably towards the end of 2011. In the meantime, I would like to share some of my insights on the topic here, which I hope will help anyone tasked with improving their organization’s supply chain continuity.

Five helpful insights

1. Ultimately, you pay for supply chain interruptions – it is your
risk, not your supplier’s risk. Your supplier will lose or defer some revenue if they fail to supply you, so there is undoubtedly some impact on them, but they may have other unaffected products or services, other unaffected customers, and you are further up the value chain so your impact may be much more severe. The onus is on you to mitigate your supply chain risk, not on your suppliers. It is in your interest to help your suppliers improve their continuity capability and helping them will develop a relationship based on trust and respect with open, two-way communications and a collaborative posture that will pay dividends when you face a supply chain interruption.

Work with your suppliers, not against them.

2. Do you know what supply chain continuity you need? I am amazed
how many business continuity managers do not know how many suppliers their organization has. You must determine what supplies and services you depend upon, who supplies them and, if push comes to shove, how long you can survive without them and whether you can secure alternate sources of supply within that timeframe. It is a simple step from this to understanding your requirements and articulating them in terms of RTO (recovery time objective – time taken to reinstate delivery following interruption) per product or service based on business impact. This can also quickly help you establish where to focus your efforts first.

3. Do you ask your suppliers the right questions? We often ask
meaningless activity-based questions of our suppliers regarding their business continuity management programme, such as, “Do you have a business continuity plan?” Instead, it is better to ascertain programme outcomes; you need to know their continuity capability as it pertains to the products or services you take from them. It would be better to ask what service level you can expect from them. In other words, what RTO can they deliver for each of the products or services you rely upon them for.

4. Can you obtain a service level commitment? It is good news if
your supplier’s stated continuity capability meets your requirements, but how can you be sure it is not just empty words? What if the supplier’s RTO only delivers limited supplies and it decides another customer is more important to them than you are? The ‘gold standard’, often out of reach without significant influence over the supplier, is a service level commitment – ideally something contractual – that offers an RTO and an assured level of supply, underwritten by a senior officer signing off that this capability is proven through testing every 12 months.

5. Build a framework to drive adoption across the organization and
accept that it takes time and continual effort to embed supply chain continuity. With thousands of suppliers, a constantly changing supply chain and conflicting organizational efficiency objectives, supply chain continuity management is a daunting task. Many functions are involved, such as procurement, legal, vendor management, operations, and so on. Establishing a separate supply chain continuity management function risks stakeholders abdicating responsibility instead of becoming better informed, more involved and working in collaboration with other stakeholders to achieve supply chain continuity management objectives. It is better to construct a framework that structures and enlists the cooperation of existing internal experts.

Improving supply chain continuity is an ongoing task. Many organizations have a large number of suppliers and some supplier relationships may be difficult to change at will. An opportunistic and triage approach that exploits ‘moments of change’ and seeks to address supply situations that will add value quickly, demonstrates business benefit. Never underestimate the importance of reporting the benefits of your programme as they accrue.

If you want to know more, why not come to this year's Business Resilience in the Supply Chain conference on 14 September in Reading, which I've been invited to chair. You can find out more about it at www.brisc2011.com

•Date: 18th August 2011 • Region: UK/World •Type: Article • Topic: BC General

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