Manage your supply chain

The recent natural disasters underline the need to manage supply chain risk as survey findings reveal supply chain failure is costing businesses an average £400k.

We are seeing growing concern from businesses that rely on the supply of raw materials, component parts or contracts with Japanese businesses as to how they will fulfil their order book now that their supply chain has failed. Another aspect causing concern, is ensuring they deal sensitively with the emotional effects many employees are experiencing, particularly those who had friends or relatives living in Japan at the time of the quake who are awaiting or dealing with the news of the fate of their loved ones.

A commercially sound risk management approach is always to have alternative suppliers of any goods or services that could potentially affect the going concern of a business. Whilst these are indeed tragic events that no-one wishes on anyone, it is good commercial sense to ensure your business has a business continuity plan to protect the business and the welfare of your employees. This also acts as a safeguard on the UK economy from the knock on affects of such tragic circumstances.

For those businesses that did not have such contingency plans in place prior to the disaster, the race will now be on to try to quickly source alternative suppliers, often at an inflated price. The key for these businesses is to maintain an ope dialogue with staff and customers at all times.

The increase in global trading means that disasters like Japan, Haiti, and New Zealand have far wider affects. Indeed a recent survey by the Business Continuity Institute found that adverse weather is now the main cause of supply chain failure, with 53% respondents citing this, up from 29% on the previous year. The survey, which is the second annual Supply Chain Resilience survey, spanning 35 counties across 15 industry sectors found that supply chain failure increasingly common. Over 70% of organisations recorded at least one supply chain disruption in 2010, with the average organisation reporting five incidents. For over half of businesses, these incidents led to a loss of productivity. The report also found that:

• For 10% of companies, the financial cost of supply chain disruptions was at least £400,000
• 20% admitted they had suffered damage to their brand or reputation as a result of these disruptions
• 50% experienced a loss of productivity due to supply chain disruptions
• 15% of respondents have not reviewed their business continuity plan with key suppliers
• Half of respondents have not looked to validate that key supplier continuity plans would work in practice

However much we might not like to think about things like this happening, this shows the need for all businesses to ensure they have reviewed their list of suppliers and made certain that both themselves and their suppliers have alternative strategies in place to mitigate any future breakdown in their businesses supply chain.