Once seen primarily as a way to protect against IT and building failure in white-collar industries, business continuity management is fast becoming an essential tool for manufacturers.
“Business continuity management takes a much broader view than traditional disaster recovery, and is now seen as an important framework for identifying and mitigating risk—something that is receiving closer attention from boards,” says Karen Humphris, business continuity management advisor at ContinuitySA. “It’s increasingly being used by manufacturing companies to help them deal with a growing range of risks.”
Humphris explains that manufacturing has become much less vertically integrated, with global supply chains and manufacturing practices premised on low or zero component stocks. This has reduced costs and improved margins, but it raises the manufacturer’s risk profile quite considerably. For example, the Japanese tsunami in 2011 severely impacted the manufacturing timetables of global companies (like Apple) that relied on Japanese component suppliers. Similarly, automotive companies were impacted by floods in Thailand that interrupted the production schedules of component suppliers.
“The longer and more complex your supply chain, the greater your risk exposure,” Humphris observes. “Manufacturers are finding that business continuity management offers a mature and tested framework for coming to terms with what their risks actually are, and then putting the necessary plans in place. Manufacturers have learned the hard way that the inability to supply product has significant financial and reputational consequences.”
Indeed, business continuity management now has its own global standard in ISO22301.
When it comes to supply chain risk, Humphris says that it’s vital that manufacturers perform a detailed analysis to identify critical suppliers. Having more than one supplier is obviously one way of spreading risk, another is to understand the logistics environment in order to predetermine alternative supply routes. Business interruption insurance is also an option but, she points out, does not mitigate the reputational risk.
“Over the longer term, you have to get your suppliers to undertake their own business continuity management by stipulating it in their service-level agreements, and then inspecting their plans,” she says.
On a practical level, Humphris says that she advises clients to identify and pre-qualify alternative suppliers so that in an emergency, stock can be ordered without delays. She also advises clients to look at holding some buffer stocks of critical components. In other words, the leaner the manufacturing process, the greater the risk.
Equipment is another key dependency for manufacturers. It’s an unavoidable fact that replacing specialised machinery has long lead times and is very expensive. Practical options include entering into fixed maintenance contracts for critical equipment and holding stock of critical spares. Humphris also advises clients to keep machinery that has been replaced in working order so it could be recommissioned rapidly at need.
“You could also enter into agreements with local competitors who make similar products to undertake production in the event of a disaster,” she adds. “Also, make sure you know about any overseas companies from whom you could import product—it’s an expensive option, but it might be necessary as a stop-gap solution.”
Taking a more general view, Humphris says that, if possible, manufacturers should have more than one production site. “Offsite storage of the finished product is really a no-brainer and has given many a company a vital bit of leeway when a disaster strikes,” she adds. “It’s also essential to make sure that your insurance cover reflects the risk analysis you perform each year as part of managing business continuity.”