Planning for Disaster

Of course, all of this risk management and business continuity planning requires a good working relationship with suppliers. “A company must make sure that its suppliers understand that these precautions enhance the long-term business relationship,” says Selle.

Perhaps most important of all, companies must avoid being in a reactive mode, where they respond to each crisis in an ad hoc manner without a comprehensive plan. For example, if after the earthquake and tsunami in Japan, a company with a single supplier in that location did nothing but find another supplier outside of Japan, then it would not have addressed the issue of supply-chain resilience. The company remains vulnerable to any troubles in the new spot, and it will not have solved the problem of having only a single supplier.

Globalization is here to stay, so when there is a disaster anywhere in the world, it will likely have a butterfly effect. But proper supply-chain risk management can help minimize the impact of any one disruption.