Supply Disruptions Don't Have To Be Fatal
PurchTips - Edition # 176 April 21, 2009
By Charles Dominick, SPSM
Are You Prepared For A Critical Supply Disruption?
Managing supply risk has never been more important. Natural disasters, labor disputes, and bankruptcy can all cause supply disruptions which are expensive to your organization. Being caught unaware and unprepared by a critical supply disruption is not good for your company or your career. This plan for developing foolproof contingency plans will help you prepare for the worst.
Develop "What If?" Scenarios - Proprietary and single source supply items pose a risk to your organization. For each of these items, create a simulation that models a real-life event that could cause a supply disruption.
Document Your Contingency Plan - No commodity plan is complete without a plan for a supply disruption. Embedding vendor risk management into your strategic sourcing and vendor add processes will help identify high risk suppliers that warrant a formal contingency plan. Use the knowledge of potential alternative sources of supply gained during your sourcing process to ease the creation of the contingency plan.
Practice Your Response - Contingency plans that sit on the shelf unread are of limited use. Use surprise drills to practice your response to potential disruptions. The plan you put in place last year may no longer be viable because of changes in the supply market.
Measure The Results - Measure the results of your contingency plan and determine how long it will take you to bring a new supplier online. Calculate how much the disruption and recovery will cost your company in increased supply costs, lost orders and potential damage to your company's reputation.
So your contingency plan looks like it will work; but is it the best solution? Evaluate the results you measured and if they are not acceptable, review and revise your plans. The moment of a real supply disruption is the wrong time to try your contingency plan for the first time.
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