How is it that some companies are so much better than others at dealing with sudden supply chain disruptions? A three-year research project at MIT's Center for Transportation and Logistics aims to answer that question. The researchers are studying the impact of terrorism and other disruptions on supply chains in hopes of identifying what the more resilient companies are doing to make sure they're ready when disaster strikes.
Oftentimes, what divides the resilient companies from their counterparts is nothing more than a corporate commitment to contingency planning, says Yossi Sheffi, an MIT professor who's leading the project. "Many times, the issue is cultural—making sure that damage control is built into the very fabric of the organization," he says.
Take the case of cell phone manufacturer Nokia. A few years ago, disaster loomed when the production of computer chips was halted by a fire at a large supplier. Nokia reacted quickly and found alternative sources of the chips. Competitor Ericsson was much slower to react and eventually exited the cell phone business.
Nokia was able to recover quickly because its culture of openness allowed even bad news to be communicated quickly throughout the company. But that's certainly not standard practice. All too often, companies try to suppress news of negative developments, which can create problems. "When the tendency is to hide or delay negative information, the company concerned is generally slower to react when hit by the unexpected," Sheffi says.
When it comes to business continuity planning, managers tend to focus on what they can control directly (their own plants and DCs, for example), and not on what their supply chain partners are doing. That could leave big gaps in their emergency plans. To avoid unpleasant surprises, researchers at Michigan State University recommend that companies ask their key suppliers the following questions:
- Have you established a strong business continuity plan?
- Is this plan deployed at all existing sites?
- Does this plan address management succession and identification of key staff?
- Does this plan identify and utilize both a primary source and a backup source?
- Does this plan identify all mission-critical materials and equipment, as well as replacements?
- Is there off-site storage of vital records?
- In case of disaster, are there procedures to restart business-critical services and to organize transport to a backup site?
Resilient companies also make a point of preparing their organizations for supply chain interruptions. Part of Nokia's response, for example, was to redesign its product so components from other sources could be used.
Plan of action
What elements go into a good business continuity plan like Nokia's? A separate study conducted by Michigan State University took a look at that question. The MSU study— funded by a grant from the AT&T Foundation—was designed to identify and codify practices companies used to reduce and respond to supply chain disruptions as well as to come up with a formalized approach to business continuity planning.
According to the MSU study, the tendency among today's companies to run lean—that is, keeping buffer inventory to a minimum—heightens their vulnerability to supply chain disruptions. "There are clear benefits from lean supply chains," says George A. Zsidisin, a researcher at Michigan State University, "but it also leaves [companies] more susceptible to business interruptions. Companies can manage and live with those risks, however, by making sure that they and their partner-suppliers develop and deploy strong business continuity plans."
The study goes on to identify the four major elements of a good supply chain business continuity plan, which can be summarized as follows:
- Awareness that the supply chain is susceptible to potentially crippling disruption;
- Prevention, through risk identification, risk assessment, risk treatment and risk monitoring;
- Remediation plans for recovery from a disruption; and
- Knowledge management—through a shareable, postevent audit of supply chain disruptions throughout the organization and supply chain.
Given the risks, would companies be better off abandoning plans to run lean and halting just-in-time parts deliveries? Not necessarily. Researchers at MIT suggest that justin- time manufacturing is still viable, as long as manufacturers work in close collaboration with their suppliers and have a well-thought-out backup plan in the event the primary supplier falls victim to a disaster.
MIT's Sheffi notes that the benefits of supply chain continuity planning can go well beyond their utility in cases of disaster. "[Steps taken in] preparation for a supply chain disruption," he says, "can … [also] help companies prepare for day-to-day changes in the supply chain and the growing uncertainty in the market."
—Freelance writer Alan Earls contributed to this report
