Supply Chain Disaster Planning: How Prepared are Your Suppliers?
Author's note: This is the second in a series of blog posts that examines some key considerations for supply chain disaster planning.
When companies create business continuity plans, supply chain risks are often ignored. All too often the reason is because it seems like supply chain issues are simply beyond the control of your business. While this may be true to some extent, there are important steps you can take to plan for and minimize disruptions to your business when suppliers are hit by disasters or unusual events.
How Many Eggs in a Basket?
The number or suppliers in your chain and the importance of what they provide to your business can significantly impact your approach to planning. If you rely on suppliers for commodity products or resources, then it’s likely easier to create a backup plan should disaster strike. But when you rely on a single provider for a key resource that may be otherwise hard to come by, careful supply chain disaster planning becomes critical. Otherwise, your supplier’s disaster can quickly become your disaster.
Review Your Suppliers’ Plans
If a disruption to a key supplier has the potential to impact your business in any way, then it’s important to understand their business continuity plans so you can better assess your own business risks. The first step is simply asking them to walk you through their plan. This will give you the opportunity to evaluate how risks to their business could impact your business and ask clarifying questions, such as:
- What types of potential natural disasters could you face (earthquakes, floods, tornadoes, hurricanes, tsunamis etc.)?
- Which types of disasters are most likely to occur?
- Are there any social circumstances that could lead to business shutdowns or delays (for example, civil unrest in a region from which you get a key commodity)?
How would each of the likely situations potentially impact your business operations?
- How would your infrastructure be impacted?
- How would your supply chain be impacted?
- How long do you estimate it would take you to get back to normal operations in each case?
Ask for a Certificate of Insurance
When asking about your suppliers’ business continuity plans, it’s also important to confirm that they have a certificate of insurance on file. Not having a certificate on file should raise a red flag that the business may not be properly managed and that you could face serious issues down the road if an unexpected event were to occur. For example, if a disaster were to halt supplier operations, the business would likely fail without insurance. So it is critical that you, at the very least, have a list of backup suppliers on hand that you could turn to should your supplier’s production stop for any reason.
What It All Means to Your Business
If your suppliers can answer your questions, you can better assess your own risks and ensure you have the appropriate plans in place to react quickly should a disruption occur. In our next post, we will discuss how you can adjust your business continuity plan based on your better understanding of supply chain-related risks.