Businesses turn blind eye to supply chain risk

It is mid winter here in the Northeast, a time of year when travel plans always risk disruption when icy winds and storms sweep down from Canada. Logistics managers know all too well how weather can interfere with cargo movements via highways, mountain passes, and sea and air lanes. And it's not just logistics managers in the Snow Belt who need to keep a wary eye on the forecast. A typhoon somewhere in the Pacific can easily disrupt inventory flow on land thousands of miles away. Indeed, it is almost inevitable.

Chalk it up to a gloomy winter's day, but I've been thinking about the myriad ways that nature—not to mention accidents, criminal and terrorist attacks, or simply bad luck—can disrupt supply chains. There are so many possible causes of supply chain disruptions, in fact, that most companies have experienced disturbances of one kind or another in the past year. A recent survey of companies from 35 countries conducted by the London-based Business Continuity Institute found that 72 percent of respondents had suffered at least one supply chain disruption in 2010. Bad weather was the main culprit, cited by 53 percent. That was followed by unplanned information technology and telecommunications outages and failures on the part of providers of outsourced goods and services. Companies that have shifted production to low-cost countries were particularly vulnerable: 83 percent of those firms experienced disruptions, mainly due to transportation problems or suppliers' insolvency.

For most of those companies, supply chain disruptions were not a one-time event. The average number of disruptions per company was five, and some organizations reported 52 or more—more than one a week. One-fifth of respondents admitted that supply chain disruptions had damaged their brand or reputation.

With that in mind, here are statistics I found particularly startling in this age of lean inventories and widespread outsourcing: A mere 7 percent of respondents have ensured that their suppliers have adopted business continuity plans, while a full 24 percent have not even made an effort in that regard. In other words, 72 percent of the survey respondents have experienced disruptions, many admit to having suffered lost productivity or some other type of business damage as a result ... and this issue is still not top of mind.

Every supply chain manager should know that disruption of some sort at some time is inevitable and that disruption can seriously hurt their business. To my mind, this much should be obvious to all: No supply chain management strategy can be considered complete unless it includes a business continuity plan for every critical segment of the company's network.