With Hurricane Joaquin hitting the headlines and the 10th anniversary of Hurricane Katrina just arrived, electronics OEMs have been given a huge reminder of the terrible impact that hurricanes can have on the electronics supply chain.
Among the long list of losses associated with this most recent storm, cargo ship El Faro was lost during its regular run from Jacksonville to Puerto Rico—underlining the real logistical nightmare that hurricanes leave in their wake. The ship and its crew of 33 were lost along with 685 containers of cargo, the report said.
Called “100-year floods” these huge storms, though, can occur more often, in as little as three to 20 years and even two years in a row, scientists say. The impact is notable on businesses: half of the U.S. population lives within 50 miles of the coast and two-thirds of the world’s megacities are located in the coastal zone.
It's a good time, then, to do a supplier audit to figure out where the biggest risks for problems might be. EBN spoke to Eric Jones, vice president and global manager of Business Risk Consulting (BRC) at FM Global to find out best practices.
“The first thing to do is look at which suppliers we really need to be worried about, those that are a single or sole-source with no other or only a minimal alternative,” he said. “Then, you need to understand where you have significant supplier exposure points, then figure out the amount of exposure risk.”
Start with the following questions:
- What revenue and margin streams are attached to these high-risk suppliers?
- What are the production capabilities of each of their facilities?
- How long does it take to qualify or replace a supplier?
- What are the options in terms of replacing the supplier if needed?
- What in-house strategies can be used to mitigate the risk (Building up inventory? Designing in alternate products? Qualifying alternative suppliers? Diversifying the supply chain? Acquiring a supplier?)
- What is the level of resilience of these key suppliers?
- Can partnerships with other organizations be formed to make these key suppliers more resilient?
- What are these key suppliers doing about their own supply chain exposure?
- What business continuity plans have key suppliers developed? Has it been tested and verified? Is it refreshed at least annually?
- Logistically, what are the various points in the supply chain (i.e. ports, rail line, choke points)? What are the risks associated with the distribution route?
Further, organizations need to look at their own facilities and the key facilities of their suppliers. “For supply chain, we can extend those activities to key components of the supply chain as long as they are known up front,” Jones said. “It's important to understand if you have a choke point, such as a particular port or key distribution center or warehouse that you receive a lot of product from.” Develop hurricane plans (and encourage key suppliers to create plans) that include evacuation plans, an understanding of what needs to be fastened or secured, and consider alternatives in the event of losing utilities for days, weeks or even months, he added.
“Property is a blind spot in terms of supply chain risk management,” said Jones. “We need to get property risks more in the forefront of supply chain mind and have a dialog with suppliers and talk about what to do you do if you lose a key facility.”
There are at least four areas to be considered in trying to safeguard physical locations:
- What can be washed away? Vehicles, electronics, and other high-value items should be relocated to safe areas. Machinery should be protected from water damage by placing sandbags at potential water entry points and covering with plastic sheeting.
- What can be blown in? Any heavy outdoor object can become a missile during a hurricane, and should be stowed or anchored. Trees need to be trimmed. Shutter windows and doors to withstand wind or flying debris.
- What can be torn apart? Building maintenance is critical, from fixing deteriorating roofs and buildings to ensuring drains are clear. Apply additional anchors on parts of the building that are particularly vulnerable helps.
- What can be cut off? Alert authorities and utilities about any roads or services that may be disrupted by the storm. Ask contractors and equipment repair service providers to be on standby. Create a salvage crew that can take action immediately after the storm. Reduce the chance of fire by shutting off electricity and gas.
These conversations should include all the key parts of the organization, including operations, supply chain/procurement, and risk management. “These three areas don't always talk to each other effectively,” said Jones. “You need to mine the information and spread the information out so all three are talking about it and understanding what the other areas know. Information sharing is the biggest challenge within most companies.”
Is your company ready for the next big storm or disaster? Let us know in the comments section below.