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January 1, 2004

Awake in the Dark

Assessing your weakest link is the best way to plan for supply chain disruptions.

by Ram Reddy

Continued from Page 1

Vulnerability Assessments

Most prudent companies have business continuity plans. Reviewing these plans can be a good starting point to developing a supply chain vulnerability assessment. A cross-functional team that was headed by an operations or IT person originally developed your business continuity plan. A similar cross-functional team is necessary to develop a supply chain vulnerability assessment. But while your business continuity plan identifies essential resources and services within the company that are critical to recovering from disruptions, the focus of the supply chain assessment team is external. This team seeks to answer, "What are the raw materials, components, and services that we source from external partners without which our company would come to a grinding halt?"

Answering this question is the first step toward identifying your weakest link in the supply chain. Once your team identifies critical raw materials and services, the next step is to review the business partners' supply chains that provide them.

Clearly, if the list of critical raw materials and services is huge, it needs to be revised with input from the business owners. A typical tendency among teams is to put everything on the critical list, "just in case." Given the amount of work necessary to perform a thorough supply chain vulnerability assessment, this list should only comprise those raw materials and services that, if lacking, would bring your company to a screeching halt.

The team then identifies the supply chain partners' critical raw material and services sources. (The suppliers that interact directly with your company are called first-tier suppliers. Suppliers to the first-tier suppliers become second-tier suppliers, and so on.) This assessment continues until you reach a point where the n-tier suppliers are essentially buying commodity goods and services. You should now have a clear supply chain vulnerability path identified for your critical raw materials and service inputs. Your team can then assess the supply chain vulnerabilities of companies along this path and make contingency plans in case those suppliers are unable to perform. (Depending on your company's situation, the assessment could also stop at the first- or second-tier supplier level.)

Now that you've identified critical suppliers of raw materials and services, the task of developing contingency plans begins. The contingency plans, although driven by business sourcing, distribution, and manufacturing imperatives, are enabled mostly by IT. The role of IT is critical in developing contingency plans that actually work in case of supply chain disruptions. Moreover, a contingency plan isn't enough; your enterprise needs to allocate resources to rehearse and implement it. Most forward thinking companies consider this an insurance policy for business continuity.

Standing Out Among the Competition

Contingency plans typically bring on new partners from different geographies to provide critical raw materials and services in the event of supply chain disruptions. A turnkey approach is often your best bet to deploy IT and service solutions for ordering materials and bringing new partners online quickly. Using wireless technologies, preconfigured workflow templates, and standardized servers will ensure the success of your contingency plan. In this approach, turnkey IT solutions are brought online at alternate supplier locations. Because the new supplier uses preconfigured templates, you avoid getting sidetracked on integration issues. The supplier uses these templates to supply products and services until the disruption is addressed.

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The costs of software, hardware, and packaged applications have significantly decreased over the past few years. Multiple alternatives to buying technology — such as leasing or pay-per-use services — are widely available. The cost of having contingency plans with preconfigured technology on standby is a pittance when compared to the potential costs of a supply chain disruption. Not only does the modest investment in IT buy you peace of mind, but also increasingly some companies are using this to differentiate themselves from the competition. The tag line seems to be "we can take it on the chin, but keep on trucking. Our competitors can't!"

Ram Reddy [ramreddy@tacticagroup.com] is the author of Supply Chains to Virtual Integration (McGraw-Hill, 2001). He is also the president of Tactica Consulting Group (www.tacticagroup.com), a technology and business strategy consulting company.