Source: MIT Center for Transportation and Logistics, Supply Chain Frontiers #18 - January/February 2007
How well do you know your suppliers? It’s a question that becomes critical in emergency situations when close cooperation with trading partners is essential to a rapid recovery. Yet even the most rigorously negotiated contracts can overlook the key supplier capabilities companies need to endure a severe supply chain disruption without losing competitive ground.
A robust assessment of your supplier network “goes beyond a one- or two-page questionnaire about their business continuity efforts,” said Houston-based supply chain risk management consultant Harold L. Hart. Companies should delve into the processes and practices that underlie suppliers’ recovery plans.
Hart played the role of a corporate emergency response team director during a business continuity workshop staged by MIT’s Center for Transportation & Logistics in Cambridge, MA, November 28-29, 2006. As part of the workshop, executives from a wide cross section of industries were cast as managers responding to a simulated supply chain disruption caused by an outbreak of avian flu in a Chinese manufacturing plant. After the simulation, the participants related real-life business continuity experiences during a debrief session.
One of the main lessons learned from the exercise was that companies pay a heavy price when caught in a crisis with suppliers that are ill-prepared. In the simulation, fictional U.S. cell phone manufacturer Vaxonn was about to launch a major product, when operations at its contract manufacturer in China were interrupted by an avian flu outbreak. As the crisis unfolded, it became clear that Geeling, the imaginary contractor, did not have an effective recovery plan, a failing that compounded the flaws in Vaxonn’s own business continuity efforts. The product launch stalled, and Vaxonn was put in serious jeopardy.
This fictional account is a fair reflection of similar, real-world incidents. “Often there is an assumption that when a contract is written, a lot of the business continuity requirements are covered, but that is not always the case,” said Hart. Contracts might refer to the actions that suppliers will take when business is disrupted, but all too often companies do not get behind these contractual clauses to ascertain exactly how the responses will be implemented. “For example if the supplier says it will switch production in the event of an emergency, how will it actually do this and where is the alternative facility?” Hart said.
Another potential pitfall is not providing a watertight communications plan. As Hart explained, it is often assumed that the supplier manager who signed a contract with your company will be available during a crisis. That may or may not be true, yet contracts often omit back-up contacts for emergency situations.
Frequently the problem is that responding to emergencies is perceived as a self-contained activity that falls outside the remit of functional areas such as supply chain. “For example the procurement folks are focused on providing quality, quantity and the right price for the company. They may not have paid much attention to business continuity,” Hart said.