The majority of businesses are aware of the importance of having continuity processes in place to ensure they can continue to operate effectively in the event of a crisis, such as fuel strikes, poor weather or the impact of the volcanic eruption in Iceland. But it is just as crucial for firms to consider how well their suppliers could cope in such incidents, as one failure could have an adverse affect on the entire supply chain.
This issue has taken on even greater importance with the advent of the global economic downturn, according to an article in Continuity, Insurance and Risk Magazine. Correspondent Nick Martindale noted that companies have increasingly looked to cut costs by relying on their deliveries to turn up just in time, thus removing any margin for error in what can be a potentially complex web of inter-dependencies in the supply chain.
While this may lead to short-term savings, it also leaves firms more vulnerable than ever to problems hitting their supply chain, the journalist explained. Could your business cope if its supply chain was affected by a crisis?
Research conducted earlier this year by PricewaterhouseCoopers has illustrated that supply chain management is increasingly becoming a major concern for business leaders. Some 35 per cent of chief executive officers at consumer goods firms cited a breakdown in their supply chain as either 'extremely' or 'somewhat' worrying, higher than the 25 per cent who expressed their concerns about terrorism. The only issue which these executives were more anxious about was a major disease pandemic preventing consumers from taking to the High Street at all.
Experts in supply chain management have explained it is crucial for firms not just to ensure that their own house is in order regarding business continuity planning, but that their suppliers can cope in the event that these processes need to be put into action.
Companies are encouraged to identify their requirements in terms of re-supply times and volume across their supply chain and be satisfied that their suppliers have adequate business continuity measures in place to meet these requirements. Where these requirements cannot be met, the company must look to establish alternative sources of supplies to avoid inadvertently accepting a risk which threatens its own ability to continue trading.
As well as checking that a potential supplier's crisis management plans are up to scratch prior to agreeing to do business with them, experts have pointed out that this monitoring companies must continually review the effectiveness of their partners' continuity processes, particularly given the harsh financial climate which affected businesses throughout 2009 and into this year. A number of firms may have had perfectly good plans in place prior to the recession, but cut back on their continuity provisions in a bid to reduce costs and stay afloat during the downturn - something which analysts have warned is most likely to have occurred at smaller companies. Without ongoing vetting, these changes may go completely unnoticed, putting the entire supply chain at risk. How can a poorly-managed supply chain affect your business?
The importance of a well-managed supply chain is perhaps best highlighted by the plight of entertainment retailer Zavvi, which went to the wall back in late 2008 as a direct result of the failings of its suppliers. Woolworths subsidiary Entertainment UK, which at the time shipped stock to a range of high-profile companies, including the likes of Morrisons and Sainsbury's, collapsed and was unable to meet its commitments to Zavvi. It resulted in the retailer missing out on the lucrative Christmas shopping market after it found itself unable to source CDs, DVDs and other such products at a reasonable price from direct suppliers.