Coping with catastrophe. Can your supply chain recover?

I spotted this article from the Wall Street Journal a few weeks ago and a couple of points caught my eye.  First, 2010 was a record breaking year for natural and man-made disasters. We had a virtual smorgasbord of catastrophes from flooding, to fire, to snowstorms. We had Volcanoes grounding air travel and earthquakes devastating an entire country. And of course, a major oil spill, the impact of which we will be feeling for years to come. According to the article, the economic losses from the disasters reached $222 billion US (three times that of 2009), which is only outdone by the human cost; 260,000 lives. The other interesting point is that today’s interconnected world makes us far more aware and susceptible to the impact of these natural disasters. Instantaneous news through Twitter, Facebook, YouTube and blogs puts a human face on these events that simply couldn’t be done in a 15 minute segment on the evening news. The economic impact of a catastrophe on today’s global business is also far greater. Almost every large company has a distributed manufacturing base. Further, the suppliers which feed that manufacturing system also are spread around the world. This means that a disaster in some faraway place could have a devastating impact to a company’s ability to ship their product. The article outlines a few suggestions on how to protect yourself from disasters at home and around the world;

1)      Create a business continuity plan – A business continuity identifies the activities/people that are critical to running the business, and ensures that these are protected.  As Wikipedia puts it; a business continuity plan works out how to stay in business in the face of a disaster.

2)      Supply Chain Risk Management - Specific to the supply chain (and typically part of the Business Continuity Plan) you need to assess your supply chain to determine which suppliers are critical and for those suppliers, identify workarounds should this supplier not be available. Of course, this applies to both external and internal suppliers. A plan, while critical, is not enough. My position has always been that responding to unplanned events is a key component of supply chain risk management. You can assess all aspects of your supply chain, create mitigation strategies for any possible events and still be surprised by some unexpected and unplanned situation. Your ability to respond will mean the difference between a financial catastrophe and a minor blip (for more reading on this, download my whitepaper here.) 3)      Insurance / Catastrophe Bonds – The Wall Street Journal article identified that companies can take out disaster insurance or catastrophe bonds. Of course, Insurance should never be your only disaster recovery plan. This white paper aptly describes disaster insurance as “the disaster recovery plan of last resort.” Like home insurance, you would take many steps to ensure that a disaster doesn’t impact your home (removal of dangerous trees, installing smoke / fire detectors, buying fire extinguishers), but if something DOES happen, you are glad to have the insurance to fall back on. While I hope 2011 will be less “exciting” from a disaster perspective, I wouldn’t count on it.  Already we’ve had a few winter storms across the US that people have classed as “snowmaggeden” events that basically stopped all movement across the central and eastern US for several days. Further, the trend towards globalization will continue and as such our sensitivity to regional disasters will continue to increase. So with that in mind, do you have a disaster recovery plan? Does it include supply chain risk?  Comment back and keep the discussion going!