A recent report on global supply chain resilience from The Business Continuity Institute revealed that 49% of respondents (a mix of business continuity, risk management and supply chain staff) said business management are ‘much more committed’ to managing supply chain risk as a result of COVID-19 [1].
And yet, 2020 research from advisory firm Grant Thornton found that just 11% of SMEs have end-to-end business continuity plans (BCPs) in place for their supply chain [2].
This article will explain the importance of having a business continuity plan and offer guidance on how to create one.
What is business continuity?
Business continuity is about having a plan to maintain business in the face of an event that could incapacitate you, says Simon Geale, Executive Vice President and Chief Procurement Officer at procurement specialist Proxima.
Focusing on supply chain business continuity and supply chain risk management is a way of getting ahead of future problems. In practical terms, this means working collaboratively with key partners and suppliers to plan and agree on contingency arrangements. However, most companies only conduct a top-level check on suppliers.
Why is business continuity planning important?
There has been a lot of economic disruption in recent years. But more localised issues at factory sites, staffing issues, and commodity supply issues can also have an impact. A BCP outlines how an organisation can operate during unplanned service disruption, whatever the cause, helping you deal with financial and operational risk.
Key elements of a supply chain business continuity plan
A supply chain business continuity plan should focus on the following:
- Risk identification – what are the existing and potential risks?
- Risk mitigation – what can you do to alleviate these risks?
- Risk management – what should you do when a risk occurs?
Risk identification
The type of risk, says Geale, “all depends on what’s in your supply chain”.
Risks could include being vulnerable to climate events, cyber-attacks, infrastructure issues and financial failures. According to Geale, businesses should look at how long their suppliers have been operating, where they’re located, how their business is focused, and ask themselves: "is there resilience in there already?"
“You’re looking to understand what every supplier does, how they interact with you, and what risks they are exposed to,” he says. This task might mean ensuring your internal departments keep in close contact with your suppliers’ finance, legal and logistics departments.
Risk mitigation
Simple ways to mitigate risk include dual sourcing (choosing two suppliers for the same raw material) and product substitution (understanding which products/ components could be replaced with something similar, if necessary).
But in the long term, alleviating risk comes mostly down to knowing your suppliers well, explains Geale. “There was a famous case in the US where a retailer suffered a cyber-attack via its air conditioning vendor who was tied into various systems,” he says.
A basic risk check would be unlikely to pick up this type of risk, so the retailer should have done its own work getting to know the vendor and how robust its operations were. Again, this comes down to close contact with and between yours and your suppliers’ departments to identify and mitigate these risks.
In short, if you understand your suppliers’ vulnerabilities, you can either do your utmost to protect yourself from also being impacted, or find new suppliers that are less likely to expose you.
According to Geale, another thing that companies often get wrong is thinking too short-term about supply chain risk.
“They only consider risk when signing the supplier contract and don’t do due diligence checks throughout the relationship because of the costs associated,” he says. Geale adds that continuity planning should also extend past the end of the contract, since business continuity should take into account the disruption of switching suppliers.
One danger in this approach to supply chain management is that by focusing too much on managing risk out entirely, operations become slower, says Geale.
“We see a lot of businesses getting complete supply chain transparency,” he says. “But this lengthy process becomes very expensive.”
Risk management
If you’ve made a plan and a risky scenario occurs, you should be able to make decisions such as switching suppliers, moving manufacturing to a new location, or raising prices.
Pinpoint is a UK developer of personal staff attack alarm systems for environments where staff are at risk of violence (such as hospitals, prisons, and schools). In early 2020, Pinpoint faced several concurrent issues, which caused delays in manufacturing and delivery: “Our microcontrollers were badly hit in a storm, then we had the pandemic shutdowns coupled with drought in Taiwan,” says product manager Allan Aikman.
Thanks to its business continuity plan, the business pivoted from its ‘just-in-time’ manufacturing process to a ‘just-in-case’ process, placing much larger orders than usual.
“This was a good decision helped by our excellent relationship with suppliers, who flagged up a potential shortage,” says Aikman.
How to implement a supply chain business continuity plan
Liz Barnes is managing director of SwetWipes, a manufacturer of hygienic wipes. She navigated "a perfect storm" during 2020, including driver shortages importing from China. “For me, an eight-to-12-week gap between placing the order and production is normal,” she says. However, when the pandemic hit, all the factories in China were (understandably) told to prioritise personal protective equipment (PPE) over her items.
Although Barnes managed to get her order made, she then couldn’t get sea space to transport it. “Our exports dropped dramatically overnight thanks to the shipping and trucking issues, and prices went up considerably. I would normally pay £2k for a 20ft container, but this jumped to £10k. I had no choice as the factory can’t store my stock.”
Barnes’ supply chain continuity plan now includes price increases for her products. “I had to increase my prices by 5%,” she says. Marketing has also had to change: “Most of my customers were fine with the price changes, but some have struggled with the extra cost, so I have tried to run promotions wherever possible to make this easier for them.”
SwetWipes’ BCP now includes placing larger orders and having a surplus of stock, which Barnes keeps in a 40ft container. “I am sitting on a lot of stock, and this also affects cash flow,” she says, “But I don’t have supply problems now”.
The American Express® Business Gold Card can help with business continuity by giving you more flexibility with cash flow. It gives you up to 54 days until payment is due¹, which allows you to order surplus stock but delay payment for it.
Barnes’ experiences have also changed how she views new product launches: “I am launching new product lines, but I am thinking six months in advance and constantly thinking one step ahead,” she says.
1. The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date.
2. If you'd prefer a Card with no annual fee, rewards or other features, an alternative option is available – the Business Basic Card.
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