Ensuring Operational Continuity in Supply Chains

Ensuring Operational Continuity in Supply Chains

Marsh, an insurance broker and risk advisor, recommends that organizations affected by the transport and trade disruptions caused by the eruption of the Eyjafjallajökull volcano in Iceland, review their applicable insurance policies; assess the personnel, operational, financial, reputation, and compliance impacts; and initiate business contingency plans as appropriate.

"While it is unclear exactly how long these disruptions will last and if they will reoccur, companies must closely examine not only what work functions could be at risk, but their ability to source perishable or time-sensitive goods, finished products, and even component parts from suppliers," said Gary Lynch, Marsh Risk Consulting's Global Supply Chain Risk Consulting Practice Leader.

"Today's extended global supply chains often do not provide the transparency needed to ensure a continuous flow of products and parts under current circumstances. While it is easy to check the inventory of products destined for the ultimate buyer, it is more difficult to assess inventories of component parts or ingredients used in intermediate production or by suppliers several steps removed."

As a result of the volcano-induced disruptions, many organizations have begun implementing business contingency plans in order to maintain continuity of operations, mitigate challenges posed by staff absences, minimize supply chain breakages, contain the financial and brand fallout, and preserve stakeholder relationships. Businesses that have considered the implications of this type of event and established their customer, product, and market priorities will be better placed to cope with any threats to their supply chains.

Steps currently being taken to reduce personnel and operational impacts include:

* Encouraging key staff to plan for continued work availability in the event that travel plans are disrupted;

* Ensuring that HR policies for dealing with temporary staff absences are in place and well understood by both management and the workforce;

* Tracking the whereabouts and monitoring the welfare of affected employees;

* Establishing methods and processes for both internal and external meetings and communications (eg, teleconferencing, hotlines, remote access to e-mail); and

* Actively monitoring the situation and communicating relevant information to employees and stakeholders (eg, situation updates and impact to the organization, absentee rates, travel updates).

In addition, Marsh recommends:

* Conducting a critical skills analysis and undertaking succession planning for unforeseen events;

* Reviewing the possibility of temporarily switching some activities to sites that may be less impacted and/or that have suitably experienced staff available, using a contracted workforce or fulfilling product demand via outsourcing to a competitor;

* Determining how to best service customers, suppliers and other key stakeholders, including validating service-level expectations, providing early warnings of any problems and establishing disruption resolution workflows;

* Revisiting the Business Impact Analysis (BIA), with a focus on the consequences of breakages in the supply chain i.e. The availability of transportation systems and routes, suppliers and inventory; and

* Testing assumptions, business priorities and investment decisions based on the current volcano-event.

"The health and safety of employees should be a priority," said Lynch. "At the same time, businesses must realize there are serious implications in the short and long term for their supply chains, particularly those involved in the manufacture and distribution of perishable, time-sensitive or high-value goods such as produce, flowers, pharmaceuticals, technology or resources critical to production processes. Organizations not familiar with the extent of their supply chains and their suppliers' plans for managing disruptions could face shortages as inventory becomes depleted and replenishment becomes a challenge."

Marsh recommends a number of supply chain resilience actions including:

* Establishing priorities for product/Stock Keeping Units (SKUs) based on value to the business, mapping their associated extended supply chain and identifying those that require long lead times or are sole-sourced;

* Considering alternative routes to market if goods cannot be moved to planned purchasers in a timely manner;

* Provisioning for additional storage of excess products and components and for alternative sourcing;

* Collaborating on contingency plans with air cargo handlers to verify suitability and ensure availability of capacity in a competitive marketplace;

* Developing plans for alternative ground transportation via contractual agreements, in advance if possible, as air transport alternatives will be in high demand;

* Familiarizing the organization with suppliers' contingency plans and related businesses that impact on the supply chain;

* Reviewing contractual obligations with suppliers and key metrics such as service level impacts between two parties (fill rates);

* Considering longer term action such as supply chain diversification strategies to avoid future single points of failure.

Marsh, www.mmc.com