While any or all suppliers can be affected by a disaster, not all are critical to a company’s supply chain. Thus, the first step in business continuity with regard to supply-chain security is to assess which suppliers really matter. “Then work with those to understand their vulnerability,” says Bird. “And if they are too vulnerable, look at having more than one supplier and making sure they’re in different geographic locations,” he says. (More on supplier countermeasures ahead.)
After identifying critical suppliers, the next step is assessing their exposure to risk. Harrison advises companies to conduct risk assessments of their critical suppliers that look at everything from financial risk to disaster risk. Companies also need to consider risks to themselves and their suppliers related to globalization and just-in-time inventory practices.
The global nature of today’s business environment increases the overall supply-chain risk exposure. Carlo Altomonte, associate professor at the Universita Bocconi in Italy, describes the path that an electric toothbrush takes to get to market as an example. He explains that “this electric toothbrush would be produced in 11 different plants in nine different countries in three different continents.” And that’s the case for many products.
In the past, local disasters would only have affected local supply chains, but now, as a result of that type of global production and supply-chain process, the consequences of a local event can be felt the world over.
Probably all executives would say they are fully aware of the global nature of business, but when they assess risks, they still don’t necessarily think about the risks facing their suppliers around the world. They don’t really think about the threats where those local plants are, says Bird.