By James A. Cooke
Does your electrical distributorship have a plan to deal with supply chain disruptions? With today’s news dominated by talk of extreme weather and global political unrest, risk management plans have taken on critical importance of late.
Given the financial consequences from a supply chain break, that should hardly come as a surprise. Research conducted two years ago by the Zurich Financial Services Group and Business Continuity Institute, found that a large supply chain disruption can cost a company a $1 million dollars or more. And those costs are on the rise. In a recent survey by Deloitte Consulting, some 53% of the 600 supply chain executives surveyed across all industries said supply chain disruptions have become more costly in the past three years. Those costs from a supply chain break can result in “margin erosion” on products, product flow disruptions, product quality failure and regulatory non-compliance—and that’s just listing a few of the disastrous outcomes. That does not take into account the damage to a company’s reputation from an incident.
That’s why if your electric distributorship hasn’t done so already, it should have an up-to-date risk management plan to deal with unexpected supply disruptions, whether from a natural disaster, political upheaval, labor strike, terrorism or political disaster. The plan should describe alternative sources of supply as well as alternative methods for the movement of goods or parts.
The first part of the plan should identify backup suppliers. In the cases of strategic suppliers, whose product can’t be readily acquired elsewhere, a distributor must insist that they have a contingency plan of their own. The supplier’s contingency plan should detail ways to obtain additional capacity or ensure delivery during a crisis.
Along with addressing supply issues, the plan should provide courses of action on how to keep products flowing from suppliers and to customers in times of crisis. A good start on this requires mapping the entire network from supplier to customer and then pinpointing potential bottlenecks and breakage points in distribution centers, shipping lanes and delivery routes. A contingency plan should prescribe corrective courses of action. For example, if a carrier becomes unavailable, the plan should suggest a substitute carrier who could be called upon in an emergency.
To build confidence in the plan, it should be documented and tested. The testing does not have to require an expensive computer simulation; it can simply consist of a frank, brain-storming discussion. This kind of exercise involves setting aside a chunk of time and bringing executives from various functions into a room for discussion. The assembled group of managers addresses a series of “what-if” questions, such as what harbor gateway is available in the event of a port strike, or what trucker can handle load if a motor carrier shuts down. The input from the discussion can be used to evaluate the recommended courses of action in the risk management plan to determine the validity.
Although the development of a plan requires a time commitment, it’s a necessary exercise in today’s volatile world. After all, when disaster strikes, being over-prepared pays off.
James Cooke is the editor of CSCMP’s Supply Chain Quarterly
magazine, the premiere journal of global thought leadership for supply chain
professionals. He has been writing and reporting on the best practices in
supply chains for more than 30 years.