Disruptions in the supply chain have always been a source of major concern for electronics manufacturers. However, the level of worry will only rise as today's worldwide supply networks become more geographically diverse, riskier, and ultimately, more prone to outages.
The resulting complexity that comes with mitigating risks and preparing for disruptions associated with more globalized supply chains has emerged as a key concern among businesses surveyed in a recent BSI study.
According to the study, more than three quarters of manufacturing firms (77%) pointed to increasing supply chain complexity as the fastest growing risk in business continuity. Internet attacks (68%) and increased regulatory compliance challenges (58%) were the second and third most critical concerns, respectively. Over a third (35%) of the businesses surveyed were “extremely concerned” about potential supply chain disruptions.
Much of the increased complexity stems from an increased dependence on suppliers located in geographic locations. These suppliers are often at great risk for natural disasters and human-instigated disruptions. According to BSI's research, suppliers operating in riskier countries account for the fastest growing business continuity risk among manufacturers.
“BSI's proprietary intelligence paints a clear picture of how manufacturing across different sectors can be disrupted by natural disasters, man-made disruption (conflicts), and a lack of resiliency in different countries' ability to handle such events,” said BSI in the report.
The degree to which supply chains are dependent on at-risk suppliers vary according to their industry sector. The apparel (85.6%), automotive (53%), and aerospace (51%) sectors are proportionally the industries with the highest supply chain exposure to “elevated, high, or severe risk of natural disaster,” BSI said . These industries also source a high proportion of their components and raw materials in “politically and geologically unstable regions,” said BSI.
Firms with global operations often fail to assess the potential impact of potential disruptions around the world. Several of the world's largest automakers, for example, including Toyota, Ford, and General Motors were forced to halt car production in the wake of the earthquake and tsunami that battered Japan in 2011. Many carmakers had relied on Japanese suppliers as single sources for semiconductors, sensors, and batteries before the disaster.
One supplier in Japan before the earthquake and tsunami served as a single source worldwide for a specialty pigment for car coatings, BSI noted. The effects of the shortages on car production lasted for several months worldwide.
Human-initiated supply interruptions also represent potential risks that often go unheeded– until they happen. Two days of strikes in Belgium that delayed 49,315 twenty-foot equivalent units (TEUs) of cargo at the port of Antwerp last year are among the shortages “thrown into the spotlight,” Shereen Abuzobaa, a commercial director at BSI supply chain solutions division, said in a statement.
“Our data shows an alarming percentage of suppliers in a variety of the industries are based in areas with significant risk of natural disaster or man-made disruption such as these,” added Abuzobaa.
When seeking to find ways to eliminate riskier elements in their supply chain, some OEMS might vet their tier-one suppliers, but fail to adequately analyze the risks suppliers pose further down the supply chain. A closer analysis may reveal that many second- or third-tier suppliers are located in at-risk countries, for example, BSI said.
“Testing and assessing every supplier across every tier is prohibitively time consuming for businesses” BSI said. “However, by concentrating on higher risk suppliers, companies can be more effective and confident in mitigating risks.”
In order to help mitigate global supply chain risks, BSI offered top-ten tips for business continuity planning:
- Identify critical business functions: Once critical business functions have been identified, it is possible to apply a methodical approach to the threats that are posed to them and implement the most effective plans.
- Remember the seven “Ps” needed to keep businesses operational: Providers, performance, processes, people, premises, profile, and preparation.
- Understand and track past incidents with supplier: Obtain country-level intelligence so you understand what factors may cause a supply chain disruption, such as working conditions, natural disasters, and political unrest.
- Assess and understand vulnerabilities and weak points: Conduct risk assessments to evaluate supplier capabilities to effectively adhere to your business continuity plans and requirements.
- Agree and document your plans: These should never just be hidden away. Assess critical suppliers to make sure their business continuity plans fit with your objectives and are defined within a contract.
- Make sure plans are communicated to key staff and suppliers: Equally, share them with other key stakeholders to boost their confidence in your ability to maintain “business as usual.” This is particularly important for small businesses or those working with suppliers/buyers for the first time.
- Try your plans out in mock scenarios: If possible include suppliers in your exercises and remember to test them not only in scenarios where there may be a physical risk, such as poor weather conditions making premises inaccessible, but people risks such as supply chain challenges, and boardroom departures.
- Expect the unexpected: While lean and efficient supply chains make good economic sense, unexpected events can have a significant impact on the operations and reputation of businesses.
- Make sure your continuity plans are nimble and can evolve quickly: If your plans look the same as they did 10 years ago, then they probably won't meet current requirements. Organizations engaged in business continuity management will be actively learning from their internal audits, tests, management reviews and even from incidents themselves.
- Make sure you're not just “box-ticking”: Plans that get the tick against the to-do list but don't actually reflect the organization's strategy and objectives can lack credibility and are unlikely to succeed in the long-term. Instead, make sure your plans allow you to get back up and running in a way that aligns with your organization's objectives.
How is your organization tackling business continuity in the global supply chain? Let us know in the comments section below.