Over the past few years, business continuity management (BCM) has become an integral part of the corporate risk management landscape in South Africa. But how can it benefit the supply chain?
“Companies with supply chains have the same business continuity challenges as other businesses, but with an added component,” says ContinuitySA’s Karen Jacobs. “To date, few have made plans to ensure their supply chains are able to continue operations in an emergency, such as when their primary warehouses are destroyed or rendered unusable for some reason.”
THE RISKS INVOLVED
The revenues gained from supply chain operations are dependent on the ability to collect, store and deliver goods in time and without causing any damage. While meeting the demands of the client, supply chain operators also have to ensure they collect, store and deliver at the lowest possible cost.
Should warehouse facilities suddenly become unusable or unavailable, these businesses will soon grind to a halt as their storage space disappears, along with their stock. Which company can afford to take a revenue-free break while arranging new warehouses to replace existing ones, and reordering goods from suppliers? Not to mention the time taken for insurance companies to complete their investigations and make a payment.
The challenge is more than simply providing storage space, of course. Every warehouse has shelves on which stock is stacked; cranes and vehicles that move stock around and trained personnel to manage and secure the goods while in storage. Then there is the specialised storage required for poisons, explosives and goods requiring refrigeration.
“The situation is more precarious in today’s economic climate,” adds Jacobs. “To cut expenses, supply chains have reduced their stock holdings down to the bone; today they function on a just-in-time basis with leaner buffer stocks than ever.
“They have also adopted single sourcing strategies to ensure shorter lead times and, once again, lower costs. And while these strategies have reduced costs, they have also resulted in these businesses having no leeway when unplanned-for delays occur.”
That has a paradoxical effect. When an emergency happens – whether because of a fire or natural disaster, or as the result of a strike, accidents or utility disruptions – these strategies designed to lower costs and increase profit have the opposite effect. Unplanned downtime, late deliveries and stock-outs will not improve the bottom line, but will force companies to take emergency measures to meet customer requirements.
“Assuming the company is able to make a plan and meet its obligations to its customers, it will do so at greatly increased costs, which translates to lower revenues,” explains ContinuitySA’s Julian Marais. “Most importantly, for an industry already operating on tight margins, dramatically increased costs will result in bottom-line losses.
“Essentially, if business continuity planning has not been completed for the supply chain, companies will not be able to meet customer demands. This will mean unhappy customers, loss of reputation and a reduction in market share as customers look to competitors that can deliver on time.”
The BCM approach
While the warehouse and transport components in the supply chain are not usually part of business continuity management (BCM) planning, following the process highlighted in the BCM life cycle is the appropriate methodology to use in ensuring that these companies can continue operating, no matter what.
The process includes the following steps, which are part of the BS25999 BCM standard:
• Understanding the organisation’s supply chain status;
• Developing strategies to support supply chain operations;
• Developing responses with respect to supply chain risk areas;
• Maintaining, reviewing and optimising the plan; and
• Embedding BCM methodology into the culture of the company.
The bottom line for supply chain operations is that business continuity is an essential component of their business strategy. The unexpected will occur and effective preparations are the only guaranteed way to remain operational.