While executives at many companies are concerned about supply chain disruptions, slightly more than a third (35 percent) of manufacturing executives report they are “extremely concerned” about potential supply chain disruptions, according to new research.
Executives at more than three quarters of manufacturing firms (77 percent) believe increasing supply chain complexity is the fastest growing risk in business continuity, and suppliers operating in riskier countries are the fastest growing business continuity risk, according to the results of a survey conducted by business standards group BSI and the Business Continuity Institute (BCI). Malicious attacks via the Internet (cited by 68 percent of the respondents) and increased regulatory scrutiny (cited by 58 percent of the respondents) rounded out the top three business continuity risks.
As would be expected, risk exposure varies by industry. For example, the proportion of supply chains exposed to elevated, high or severe risk of natural disaster is highest for the apparel industry (85.6 percent), followed by automotive (53 percent), then aerospace (51 percent) sectors, according to the survey results. Each of these industries relies on a high proportion of manufacturing and raw material sourcing based in politically and geologically unstable regions.
Although the relative risks differ, the key lesson for organizations to consider is their planning for potential disruption. The automotive industry, for instance, suffered from the 2011 Japanese tsunami due to a global reliance on a single manufacturer of a particular pigment essential for metallic paint finishes. As a result of the disruption, production in the Japanese factory was halted for three months before normal operations resumed, which caused long-lasting delays across the automotive marketplace.
“Our data shows an alarming percentage of suppliers in a variety of industries are based in areas with significant risk of natural disaster or man-made disruption,” says Shereen Abuzobaa, commercial director at BSI Supply Chain Solutions. “Our experience shows that while companies are aware of and test for internal risks, they fail to map or assess risk effectively across their supply chain. More often than not, only the first tier of suppliers is considered with no thought given to those further down the supply chain. Testing and assessing every supplier across every tier is prohibitively time consuming for businesses. But by concentrating on higher risk suppliers, companies can be more effective and confident in mitigating risks.”
BSI offers a number of tips for business continuity planning, and the first one is to identify critical business functions. As the firm notes, once critical business functions have been identified, it’s possible to apply a methodical approach to threats to those functions, and to implement the most effective plans.
It’s also vital to understand and track past incidents with suppliers. To gain more insight, BSI recommends obtaining country-level intelligence to better understand what factors may cause a supply chain disruption—such as working conditions, natural disasters or political unrest.
Another key challenge is to assess and understand vulnerabilities and weak points, BCI explains. Given the complexities of supply chains, companies must conduct risk assessments to evaluate supplier capabilities to ensure their business continuity plans fit with your company’s objectives and are defined within the contract.
Finally, creating continuity plans is imperative, but they must be updated regularly to ensure they reflect current requirements. That means organizations engaged in business continuity management need to actively learning from their internal audits, tests, management reviews and even from incidents themselves on a continuing basis.
How much effort does your company put into business continuity planning? Secondly, how far—if at all—does the assessment extend past primary suppliers?