The key to managing the detrimental impact of natural disasters in the supply chain is not to be at the stage of asking what to do once the natural disaster has happened. To mitigate the risk from natural disasters in the supply chain it is imperative to plan for them. Here’s a few thoughts on doing just that.
Planning for natural disasters will fortify your chain against the negative impact of such occurrences and ensure you’re ready to swing in to action in a pre-prepared way, thereby reducing the cost and implications overall.
Why it is Important to Consider Natural Disasters and Your Supply Chain
Broken supply chains have huge ramifications. Primarily, thoughts wander to costs – which can be astronomical depending on how long the supply chain is broken – and how much of the supply chain is affected. Also, how easy is it to plug those gaps elsewhere whilst others are trying to do the same? Lost profits are not the only implication however. There are other less easy to quantify knock-on effects when a natural disaster strikes a supply chain. These include: disruption; reputational damage; as well as absent customers. Planning for these eventualities helps to reduce the impact.
Planning Stages for Natural Disasters in the Supply Chain
Know Your Geography
Knowing the level of risk to the relevant geographical areas of your supply chain is imperative. Avoiding heavy reliance on Florida during hurricane season would, for example, be sound supply chain sense. Know the locations within your supply chain like you know your own home. For example, assess port availability and distribution centres. For historical and forecasting information regarding areas in your supply chain consider looking at the UN Disaster Statistics.
Keep Ahead of News
Natural Disasters can strike anywhere and at any time, but sometimes there’s a warning bell sounding quietly in international news beforehand. Knowing which news channels are going to let you hear the information affecting your supply chain is important.
Understand Local Infrastructure
Whilst it may be more expensive to have part of your supply chain in the US compared to China, is this still the case when natural disaster strikes? For example, the US gets natural disasters but they also have safety regulations with incumbent fines in place whereas emergent economies like China, which many supply chains heavily utilise, may not. You need to, in advance, weigh up the benefits of cheaper labour versus the risk of natural disasters. As Vend Signal of Georgia’s Institute of Technology’s College of Management stated: “A natural disaster-related supply chain disruption in China would have far-reaching and long-lasting negative economic impact. It would slow down the global economy because China is not only a major exporter of goods, but also a major importer of goods. It would cause shortages in many consumer and industrial products that could lead to inflation and devastate the share price of companies.” (www.theactuary.com)
Natural disasters may be largely unpredictable, but happen they will. Therefore, take the time to plan for natural disasters within your supply chain. Have various different sections within the overall plan that cover different potential scenarios. These plans should be further divided in to pre-disaster plans (should you get warning, in the case of a tsunami or hurricane for example), during-disaster plans, and post-disaster plans. Don’t only think of your own Natural Disaster plan, also seek equivalent plans from your suppliers and ensure they match up with your own.
Nominate a Crisis Team
Having a central port of call and decision-making power during any crisis, especially a natural disaster, is important to limit the effect on the business. This team will also be responsible for communications throughout the supply chain in the event of a natural disaster and allowing your collaborative processes to work.
Spread the Load
Whilst one particular supplier in one particular geographical location might be the most competitive, it is a dangerous business to put all your eggs in one basket. Consider using a variety of different suppliers and diversify transportation as well as planning alternative routes. This flexibility could prove essential to business success in the wake of a natural disaster.
Keep Your House in Order
If everything within the supply chain is regularly reviewed and kept in order then should disaster strike it will be a great deal easier for those on the ground to manage if everything is clear and in its place.
As well as keeping your own house in order, make sure that each section of the supply chain does regular data back-ups to offsite locations. This ensures that in the event of a natural disaster it is easier to move the effected element of the chain elsewhere either temporarily or permanently.
Natural Disasters and Supply Chain Success
In order not to be in an unrecoverable position should natural disaster strike, it is imperative to have thought everything through beforehand. That way, whilst the natural disaster may be a surprise, your supply chain’s response is not.