Applying disaster recovery concepts to your supply chain management process

The supply chain management process is critical for many organizations today. This tip explores how DR concepts fit into your SCM process.

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Paul Kirvan
 

Along with disaster recovery (DR) and business continuity (BC) planning and processes, a topic of critical importance within many organizations today is its supply chain management (SCM) process. SCM addresses the movement and storage of raw materials, work-in-process inventory and finished goods from the point of origin to point of consumption. It also encompasses the planning and management of all activities involved in sourcing, procurement, conversion and logistics management. Plus, SCM includes the crucial components of coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers and customers.

In essence, SCM integrates supply and demand management within and across companies. More recently, the loosely coupled, self-organizing network of businesses that cooperate to provide product and service offerings is called the Extended Enterprise.

Figure 1 depicts a basic manufacturing supply chain, transitioning from raw materials to finished products that are acquired by customers.

Figure 1: A basic manufacturing supply chain

 

Each two-way interface in the supply chain incorporates 1) the movement of goods; 2) information flows; 3) transfer of title; and 4) purchase and sale. Assuming all components and flows are operating normally, finished products should get to consumers in an appropriate time frame. But what happens if something disrupts the supply chain, as depicted in Figure 2?

Figure 2: Disrupting of the supply chain

 

Suppose a distribution facility for a department store burns to the ground. What happens to the inventory? How is it replaced? How do shipments get delivered? These and many other questions must be addressed quickly if the department store will stay in business.

A typical supply chain includes people, IT systems, communications, transportation, real estate, finance and other pieces. Loss of or disruption to any of these elements can destroy the supply chain.

To be competitive while keeping costs down, retailers and manufacturers have trimmed the fat from supply operations to more closely tie investments to demand. But in doing this, it becomes harder to maintain a resilient supply chain, resulting in a potentially fragile supply chain. What can be done?

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Supply chain continuity and disaster recovery concepts

Supply chain continuity and disaster recovery take the concepts of traditional business continuity /disaster recovery and apply them to managing supply risk. The goal is to guard against a major supply disruption that could potentially delay orders and result in loss of customers.
In BC/DR several fundamental activities occur: 1) business impact analysis (BIA); 2) risk assessment; 3) prevention and disaster recovery strategy development; 4) plan development; 5) plan exercising; 6) awareness and training; 7) program maintenance; and 8) program monitoring, audit and improvement. Let's briefly examine how each of these is used.

Supply chain impact analysis

Perhaps the most important initial activity is the supply chain impact analysis. This involves gathering extensive data about all aspects of an organization's supply chain. Among the most important outcomes of this analysis is an understanding of the interdependencies among and between supply chain elements. Without this knowledge, it is impossible to adequately identify strategies for mitigating supply chain disruptions, responding and repairing the breaks and returning to normal operations as soon as possible. The process is similar to a business impact analysis, and attempts to gather data about the various supply chain relationships that exist. These relationships can be people-focused, process-focused and technology-focused.

Supply chain risk assessment

A supply chain risk assessment helps identify internal and external threats to the chain's integrity, as well as vulnerabilities in the chain. The first step is to identify the most important supply chain impacts from the earlier analysis, how they affect the overall supply chain, and the outcome if they were damaged. Next, carefully identify and examine the threats and vulnerabilities that could disrupt or disable the most critical chain elements. Data from this analysis can help pinpoint opportunities to develop strategies, policies and plans that can directly address potential supply chain weak points.

Strategy development

Recalling the current process of lean supply chains, develop strategies that can cost-effectively address supply chain risk points. These might include using advanced supply chain management software, multiple manufacturing plants, multiple transportation firms and more. The challenge is to develop a composite strategy that addresses the broadest possible range of supply chain risks.

Plan development, exercising, etc.

Process-level plans should be developed that map solutions to the identified risks and strategies. Internal supply chain teams, selected vendors, technology organizations and key supply chain partners are all part of the plan development process. Their buy-in and ongoing support are critical if the plan is to succeed. Once the plans are developed, they should be exercised again and again until all parties in the supply chain are in agreement as to how they will work together in an emergency. Awareness and training programs can spread the message to all employees, stakeholders, and third-party organizations such as regulators and government agencies. Once the program is implemented, scheduled reviews, audits, additional exercises and updates are essential for program maintenance.

Overall, supply chain continuity and disaster recovery programs are key components of today's lean supply chains. Considering how much of a firm's survival rests on a strong and resilient supply chain, it's easy to see why supply chain continuity has become a strategic activity.

About this author: Paul Kirvan, CISA, CSSP, FBCI, CBCP, has more than 20 years experience in business continuity management as a consultant, author and educator. He is also secretary of the Business Continuity Institute USA Chapter.


 

This was first published in April 2010

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