Revisit your business continuity plan to adequately consider supplier risks and demand changes.

Revisit your business continuity plan to adequately consider supplier risks and demand changes.

In the third blog in our series on resource dependencies we take a fresh look at the third-party aspect of business continuity management with additional considerations highlighted by the onset of the COVID -19 pandemic.

While business continuity planning originally focused on the continuity of an organisation’s own operations, the reliance on vendors and the impact of non-performance of these vendors on an organisation’s operations led to the inclusion of contingencies for critical third-parties as part of business continuity planning.

There are three typical strategies that can be considered regarding the continuity of third-party dependencies.  Firstly, the inclusion of clauses related to BCM arrangements into contracts / service level agreements with critical suppliers. Secondly, the identification of alternative arrangements for products and services, such as the identification of alternative suppliers available in the market or evaluating the capability to move a service inhouse (which may be particularly applicable where the service was previously conducted internally and  outsourced for convenience). And thirdly, the use of multiple providers to provide different proportions of the same product or service to enable continuity of supply.

While these strategies are great in theory, in order to be effective, organisations need to integrate them into existing business processes. For example, it’s not just about having a standard BCM clause in every vendor contract. It becomes important to really understand the priority of your suppliers and what makes them important in relation to your business. From this, one would then be able to determine how best to manage the requirement – from contracting which requires the supplier to have a  BCM programme in place, to requesting proof of the continuity plans and arrangements in place, to being involved in testing or having sight of test results. For some larger organisations, with stronger negotiating powers, they can even dictate what specific business continuity capabilities are required of their service providers.

In the manufacturing space where long stock lead times often prevail, any disruption along the value-chain can have a detrimental impact on the ability to operate – leading organisations to consider a more than a just-in-time model, evaluating  the benefit of holding continuity reserves in a safe separate location.

Another consideration is that simply identifying an alternative supplier may just not be effective enough. From a supplier perspective, it may not be feasible to invest in a relationship if they are only required in a disaster. Nor for many organisations are their onboarding and specification processes quick enough to allow for this. As such, splitting the demand between suppliers can be more effective to ramp up supply rather than starting from nothing.  Ultimately, processes need to be agile enough to support engagement with suppliers quickly, with the necessary controls to prevent abuse. Typically, government entities have stringent supplier processes but documented emergency funding and procurement processes allow them to respond quickly in a crisis without undermining adequate controls.  

At the same time, consumers are less tolerant of disruptions, regardless of cause. What the COVID-19 pandemic has highlighted is not only the emphasis on the supply side but the role that demand disruptions can have on a value chain.

From a supply risk perspective, it’s not just about an isolated supplier disruption but often a disruption that can touch a whole industry. A pandemic is a good example of this as is industrial action. Business disruption can be bought about by business failures, bankruptcy and companies who file for business rescue.

Examining the changing demand for products and services also has serious implication for business continuity. COVID-19 has highlighted this as we have seen shelves empty without the capacity for restocking. Situations where suppliers’ current production could either not be ramped up or where access to materials was just not available due to increased demand – a good example being hand sanitizers where stocks of alcohol were depleted and access to the plastic bottles was inadequate.

Other challenges that impact the demand side are price gouging opportunists along the value chain, the government’s emphasis to buy local, impending trade restrictions, cases where stock is available but companies are unwilling to supply for some other strategic reason.  Even the changing demand for non-standard supplies in managing a crisis, like laptops, 3G cards, sanitizers, masks, thermometers have all been highlighted in this pandemic.

So, what have we learnt so far?

We need to acknowledge that suppliers are an integral part of the ability of a business to service their clients and its more than just about immediate suppliers and contingencies. We need to look at the full value-chain – explore potential threats to broader demand changes and downstream value-chain disruptors and monitor them over time.  

It can be very hard to distinguish between a hiccup to operations dealt with as part of day-to-day management and a major disruptive event where continuity measures need to be invoked timeously. And then when risks are realised, we need to respond appropriately ensuring that our internal processes are agile enough to support the response.