In today’s fast fashion world, costs constantly plague companies struggling to improve margins, but it’s the potential supply chain disruptions that keep sourcing executives wide-eyed after hours.
In fact, more than one-third of businesses in the manufacturing sector are “extremely concerned” about supply chain setbacks.
According to newly released research by supply chain intelligence firm BSI and the Business Continuity Institute (BCI), 77 percent of manufacturing firms report increasing supply chain complexity as the fastest growing risk in business continuity. Malicious Internet attacks followed, with 68 percent citing the concern, and 58 percent noted increased regulatory scrutiny as another woe.
“Recent global business continuity related incidents, such as the two days of strikes in Belgium that delayed 49,315 twenty-foot equivalent units (TEUs) of cargo at the port of Antwerp, and the droughts in Sao Paulo that forced companies to delay or halt production have been thrown into the spotlight,” said Shereen Abuzobaa, commercial director at BSI Supply Chain Solutions. “Our data shows an alarming percentage of suppliers in a variety of the industries are based in areas with significant risk of natural disaster or man-made disruption such as these.”
Global risk analytics firm Verisk Maplecroft released its Natural Hazards Risk Atlas earlier this month, highlighting the most at-risk nations where unpreventable disasters pose potential problems for foreign businesses, supply chains and economic output.
Fifty-six percent of the 100 cities most exposed to national hazards were in the key economies of China, Bangladesh, Japan and the Philippines.
“As typhoon Haiyan in the Philippines and the tsunami in Japan showed us, natural hazard events can have far-reaching and long-lasting impacts on supply chains, business and economies,” said Dr. Richard Hewston, principal environmental analyst at Verisk Maplecroft. “Understanding how, where and why those risks manifest is an imperative in managing potential shocks.”
A lack of resiliency to recover from disasters can hold things up, but companies must be prepared for man-made disruptions like conflicts or strikes, too.
Risk exposure varies by sector but, according to BSI, the proportion of supply chains exposed to elevated, high or severe risk of national disaster is highest for the apparel industry (85.6%), followed by automotive (53 percent) and aerospace (51 percent), as each have a high proportion of manufacturing and raw material sourcing based in politically or geologically unstable regions.
“Our experience shows that while companies are aware of and test for internal risks, they are failing to map or assess risk effectively across their supply chain. More often than not, only the first tier of suppliers is considered with no thought given to those further down the supply chain. Testing and assessing every supplier across every tier is prohibitively time consuming for businesses,” Abuzobaa said. “By concentrating on higher risk suppliers, companies can be more effective and confident in mitigating risks.”
BSI’s report outlined the below 10 tips for business continuity planning:
1. Identify critical business functions – Once critical business functions have been identified, it is possible to apply a methodical approach to the threats that are posed to them and implement the most effective plans.
2. Remember the seven ‘P’s needed to keep your business operational – Providers, performance, processes, people, premises, profile (your brand) and preparation.
3. Understand and track past incidents with suppliers – Obtain country-level intelligence so you understand what factors may cause a supply chain disruption e.g. working conditions, natural disasters and political unrest.
4. Assess and Understand Vulnerabilities and Weak Points – Conduct risk assessments to evaluate supplier capabilities to effectively adhere to your business continuity plans and requirements.
5. Agree and document your plans – These should never just be hidden away in the mind of the MD. Assess your ‘critical’ suppliers to make sure their business continuity plans fit with your objectives and are defined within your contract.
6. Make sure plans are communicated to key staff and suppliers – Equally, share them with other key stakeholders to boost their confidence in your ability to maintain ‘business as usual’. This is particularly important for small businesses or those working with suppliers/buyers for the first time.
7. Try your plans out in mock scenarios – If possible include suppliers in your exercises and remember to test them not only in scenarios where there may be a physical risk, such as poor weather conditions making premises inaccessible, but people risks such as supply chain challenges and boardroom departures.
8. Expect the unexpected – While lean and efficient supply chains make good economic sense, unexpected events can have a significant impact on the operations and reputation of businesses.
9. Make sure your continuity plans are nimble and can evolve quickly – If your plans look the same as they did 10 years ago, then they probably won’t meet current requirements. Organizations engaged in business continuity management will actively learn from their internal audits, tests, management reviews and even from incidents themselves.
10. Make sure you’re not just ‘box-ticking’ – Plans which get the tick against the ‘to do’ list but don’t actually reflect the organization’s strategy and objectives can lack credibility and are unlikely to succeed in the long-term. Instead, make sure your plans allow you to get back up and running in a way that aligns with your organization’s objectives.