A Supply Chain Management Guide to Business Continuity

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  • Format: Hardcover
  • Copyright: 2011-01-12
  • Publisher: American Management Association
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A well-monitored supply chain is any business's key to productivity and profit. But each link in that chain is its own entity, subject to its own ups, downs, and business realities. If one falters, every other link - and the entire chain - becomes vulnerable. Kildow's book identifies the different phases of business continuity program development and maintenance, including: * Recognizing and mitigating potential threats, risks, and hazards * Evaluating and selecting suppliers, contractors, and service providers * Developing, testing, documenting, and maintaining business continuity plans * Following globally accepted best practices * Analyzing the potential business impact of supply chain disruptions Filled with powerful assessment tools, detailed disaster-preparedness checklists and scenarios, and instructive case studies in supply chain reliability, A Supply Chain Management Guide to Business Continuityis a crucial resource in the long-term stability of anybusiness.

Author Biography

BETTY A. KILDOW has been a Certified Business Continuity Professional (CBCP) with the Disaster Recovery Institute International since 1998, and was named a fellow of the Business Continuity Institute (FBCI) in 2002. She has specialized in business continuity, disaster recovery, and emergency management consulting for more than 18 years. She is the author of Front Desk Security and Safety (978-0-8144-0826-1).

Table of Contents

Forewordp. ix
Acknowledgmentsp. xi
Introductionp. xiii
Business Continuity Basicsp. 1
What Business Continuity Is ... and Is Notp. 2
The Value of Business Continuity Planningp. 4
A Historical Perspectivep. 6
Business Continuity Planning: A New Responsibilityp. 15
Some Additional Key Termsp. 18
Going Forwardp. 19
The Business Continuity Program: Who Owns It, What Drives It?p. 21
Managing Riskp. 22
Who's in Charge, Who's Responsible?p. 24
What Drives the Need for a Business Continuity Program?p. 26
Business Continuity and Risk Management: Similarities and Differencesp. 31
Rules, Regulations, Requirements, Guidelines, and Implicationsp. 33
A Business Continuity Plan vs. A Business Continuity Programp. 34
Going Forwardp. 35
Business Continuity Best Practicesp. 37
Developing a Business Continuity Programp. 38
The Business Continuity Planning Processp. 40
Hazard Assessmentp. 47
Business Impact Analysisp. 49
Strategy Developmentp. 50
Plan Developmentp. 50
Program Testing and Implementationp. 53
Avoiding Business Continuity Silosp. 54
A Holistic Approach to Risk Managementp. 55
Going Forwardp. 57
The Organization, the Supply Chain, and Business Continuityp. 58
Enterprise-Wide Disaster Readinessp. 59
Incorporating the Supply Chain in Business Continuity Planning: An Integrated Approachp. 60
Assessing Current Preparednessp. 65
Going Forwardp. 67
Risk Identification and Hazard Assessmentp. 68
The Changing Face of Supply Chain Risksp. 69
Identifying Supply Chain Risksp. 72
Mapping the Supply Chainp. 75
Avoiding Inherited Risksp. 81
Applying the Hazard Assessment to Develop a Mitigation Programp. 82
Creating a Solid Foundation for Business Continuity Planningp. 82
Going Forwardp. 83
The Business Impact Analysisp. 84
The BIA: The Foundation of Business Continuity Planningp. 85
Conducting the Business Impact Analysisp. 86
Identifying and Prioritizing Critical Elements of the Supply Chainp. 92
The Business Impact Analysis Reportp. 103
Going Forwardp. 105
Supply Chain Business Continuity Strategiesp. 106
Devising Strategies for Managing Risksp. 107
Developing Strategy Optionsp. 109
Identifying Critical Suppliersp. 117
Examining Outsourcing Optionsp. 119
Addressing Transportation Concernsp. 121
The Role of Purchasing and Procurement in Continuity Planningp. 122
Supplier Selectionp. 122
Contracting with Suppliersp. 129
Supplier Monitoringp. 131
Ensuring Continuity Support in Procurementp. 132
Partnering with Suppliersp. 133
Disaster Recovery: IT Support of the Supply Chainp. 136
Considering the Human Factor of Business Continuity Planningp. 142
The Importance of Disaster Communicationsp. 144
Going Forwardp. 147
Business Continuity Plan Documentsp. 149
The Purpose of Business Continuity Plansp. 149
Developing the Planp. 152
Avoiding Plan Gapsp. 162
Reviews and Updatesp. 165
A Sample Basic Planp. 171
Going Forwardp. 172
Testing and Maintaining Business Continuity Plansp. 174
Training, Exercises, and Tests: The Key to Workable Plansp. 175
Plan Reviews and Maintenancep. 184
Going Forwardp. 185
Business Continuity Standards, Regulations, and Requirementsp. 186
Regulations, Planning Guidelines, and Standardsp. 187
Personal Certificationp. 196
Going Forwardp. 199
Business Continuity Planning Assessment Questionairep. 201
General and Supply Chain-Specific Hazards Checklistp. 205
Pandemic Planningp. 208
The Business Continuity Teamp. 214
Continuity Plan Samplesp. 222
Glossaryp. 249
Indexp. 261
Table of Contents provided by Ingram. All Rights Reserved.


<html><head></head><body><p style="margin-top: 0">Introduction </p><p style="margin-top: 0"></p><p style="margin-top: 0">WHETHER YOUR BUSINESS is large or small, </p><p style="margin-top: 0">whether your company manufactures printed circuit </p><p style="margin-top: 0">boards or plastic molding machines or sells </p><p style="margin-top: 0">handbags or lawn furniture, it is not unreasonable </p><p style="margin-top: 0">to expect that there is a crisis looming some time in its future. </p><p style="margin-top: 0">The reality is that no business or industry is immune from </p><p style="margin-top: 0">crisis. While our tendency is to think about major disasters that </p><p style="margin-top: 0">create havoc and impact whole communities&#8212;such as earthquakes, </p><p style="margin-top: 0">hurricanes, fl oods, or severe winter storms&#8212;for most </p><p style="margin-top: 0">businesses, the disaster is more likely to be on a smaller scale. </p><p style="margin-top: 0">For most businesses, disaster can come from an event that may </p><p style="margin-top: 0">not generate headlines, such as a water main break in the immediate </p><p style="margin-top: 0">area, a fi re confi ned to a small section of their business, </p><p style="margin-top: 0">or the failure of their IT systems. </p><p style="margin-top: 0"></p><p style="margin-top: 0">And though we tend to think in terms of environmental </p><p style="margin-top: 0">disruptions, such as natural catastrophes or pandemics, we </p><p style="margin-top: 0">must also consider social disruptions (strikes, sabotage), technical </p><p style="margin-top: 0">disruptions (a breakdown of equipment, loss of a key skilled </p><p style="margin-top: 0">staff member), political disruptions (terrorist attacks, civil unrest, </p><p style="margin-top: 0">nationalization), legal disruptions (legal shutdowns, injunctions), </p><p style="margin-top: 0">and economic disruptions (supplier failure, exchange </p><p style="margin-top: 0">rate fl uctuations, takeovers). </p><p style="margin-top: 0"></p><p style="margin-top: 0">Just as it is not possible to totally prevent most disasters </p><p style="margin-top: 0">and disruptions, it is not realistic to assume that they will </p><p style="margin-top: 0">happen to other organizations but not to yours. Being prepared </p><p style="margin-top: 0">when the things that &#8220;can never happen here&#8221; do happen is just </p><p style="margin-top: 0">plain good business. Failure to plan for such events can lead </p><p style="margin-top: 0">to supply chain disruptions that can devastate company performance, </p><p style="margin-top: 0">damage profi tability and stock prices, and result in irreparable </p><p style="margin-top: 0">harm to the organization. The consequences can also </p><p style="margin-top: 0">result in cascading damage to every business and organization </p><p style="margin-top: 0">relying on the timely receipt of your goods or services that enable </p><p style="margin-top: 0">them to continue meeting their customers&#8217; needs in order </p><p style="margin-top: 0">to generate revenue and protect their bottom line. Who wants </p><p style="margin-top: 0">to stand in front of a board of directors, senior executives, or a </p><p style="margin-top: 0">major customer in the wake of unsuccessful attempts to restore </p><p style="margin-top: 0">critical operations following a disaster? Who wants to respond </p><p style="margin-top: 0">to their queries about why the threat went undetected, why an </p><p style="margin-top: 0">identifi ed risk was not eliminated or mitigated, or why strategies </p><p style="margin-top: 0">were not in place to enable the organization to get back on its </p><p style="margin-top: 0">feet quickly? </p><p style="margin-top: 0"></p><p style="margin-top: 0">The Effects of a Disaster </p><p style="margin-top: 0"></p><p style="margin-top: 0">In today&#8217;s global economy, the effects of a disaster can be </p><p style="margin-top: 0">more than just local; its impact can reach across country borders </p><p style="margin-top: 0">and oceans. In 1995, a magnitude 7.2 earthquake struck </p><p style="margin-top: 0">Kobe, Japan, resulting in 5,100 deaths and devastating physical </p><p style="margin-top: 0">destruction. Following the earthquake, all area steel mills were </p><p style="margin-top: 0">shut down and many other businesses became nonoperational </p><p style="margin-top: 0">as a result of water and gas outages. Secondary business and </p><p style="margin-top: 0">supply chain interruptions were extensive. Kobe was Japan&#8217;s </p><p style="margin-top: 0">biggest international trade hub and a major production and logistics </p><p style="margin-top: 0">center, with approximately 30 percent of Japan&#8217;s shipping </p><p style="margin-top: 0">passing through it. Even businesses with no direct physical impact </p><p style="margin-top: 0">suffered because of damage to the utilities, port, railroads, </p><p style="margin-top: 0">and roads. Production was impossible, and shipments in or out </p><p style="margin-top: 0">were diffi cult to unachievable. When Sumitomo&#8217;s Metal Industries </p><p style="margin-top: 0">Ltd.&#8212;the sole source of brake shoes for Toyota&#8212;closed </p><p style="margin-top: 0">its plant in nearby Osaka, most of Toyota&#8217;s plants in other parts </p><p style="margin-top: 0">of Japan closed as well. For companies like Toyota that used a </p><p style="margin-top: 0">just- in- time (JIT) inventory management system and relied on </p><p style="margin-top: 0">frequent shipments of parts and materials, there was little available </p><p style="margin-top: 0">inventory on hand, leading to an interruption of production. </p><p style="margin-top: 0">According to published estimates, Toyota lost $200 million </p><p style="margin-top: 0">in revenue. Moreover, the disaster cascaded and caused supply </p><p style="margin-top: 0">chain interruptions for businesses in other parts of the world, </p><p style="margin-top: 0">including U.S. companies IBM and Apple, which relied on displays </p><p style="margin-top: 0">produced in Kobe. </p><p style="margin-top: 0"></p><p style="margin-top: 0">Even a seemingly relatively small emergency can result in </p><p style="margin-top: 0">a large business disruption. In 2000, a Phillips microchip manufacturing </p><p style="margin-top: 0">plant in New Mexico was struck by lightning, creating </p><p style="margin-top: 0">a small fi re. Though quickly extinguished, the fi re caused contamination </p><p style="margin-top: 0">in the sterile manufacturing facility, contaminated </p><p style="margin-top: 0">millions of chips, and halted the chip- making process. The </p><p style="margin-top: 0">company&#8217;s two primary customers were the two largest mobile </p><p style="margin-top: 0">phone companies in Europe, which used chips manufactured at </p><p style="margin-top: 0">the plant in cellular telephones. One of the companies, Nokia, </p><p style="margin-top: 0">became immediately aware of the disruption in chip deliveries </p><p style="margin-top: 0">and acted quickly, working closely with the chip manufacturer. </p><p style="margin-top: 0">Nokia arranged to purchase chips from another of its primary </p><p style="margin-top: 0">supplier&#8217;s plants as well as other alternative sources, quickly tying </p><p style="margin-top: 0">up the spare capacity. Some phone models were even reengineered </p><p style="margin-top: 0">to allow the use of chips from yet other suppliers. </p><p style="margin-top: 0"></p><p style="margin-top: 0">With pre- disaster plans in place, Nokia was able to continue to </p><p style="margin-top: 0">assemble and distribute its products and gain a greater market </p><p style="margin-top: 0">share. On the other hand, Ericsson&#8212;the other mobile phone </p><p style="margin-top: 0">company affected&#8212;purchased all its microchips parts from the </p><p style="margin-top: 0">single source to simplify its supply chain. Ericsson did not respond </p><p style="margin-top: 0">quickly enough, had no supply chain continuity plan in </p><p style="margin-top: 0">place to obtain the chips, already in short supply, from another </p><p style="margin-top: 0">source; and suffered a lengthy and costly disruption in its assembly </p><p style="margin-top: 0">and distribution processes. The resulting inability to </p><p style="margin-top: 0">launch new products, loss of market share, and fi nancial losses </p><p style="margin-top: 0">in the hundreds of millions of dollars made it necessary for </p><p style="margin-top: 0">Erics son to merge with another company just to survive. The </p><p style="margin-top: 0">overall outcome was a permanent shift in the balance of power </p><p style="margin-top: 0">between the two electronics giants. </p><p style="margin-top: 0"></p><p style="margin-top: 0">Mishaps such as technological failures&#8212;even those that </p><p style="margin-top: 0">occur outside the organization&#8212;can become an inherited disaster. </p><p style="margin-top: 0">When a major power outage started shortly after 4:00 P.M. </p><p style="margin-top: 0">EDT on Thursday, August 14, 2003, within three minutes, twentyone </p><p style="margin-top: 0">power plants shut down, impacting eight states&#8212;including </p><p style="margin-top: 0">New York, New Jersey, Ohio, Michigan, Connecticut, and Pennsylvania&#8212; </p><p style="margin-top: 0">and parts of Canada, including Ontario. Estimates of </p><p style="margin-top: 0">the total cost of the blackout have ranged from $4 billion to $10 </p><p style="margin-top: 0">billion in lost income to workers and investors, extra costs to </p><p style="margin-top: 0">government agencies, repair costs to the impacted utilities, and </p><p style="margin-top: 0">costs for lost or spoiled food and other commodities. </p><p style="margin-top: 0"></p><p style="margin-top: 0">Consider what a similar power outage would mean for </p><p style="margin-top: 0">your organization. Approximately one- fourth of the businesses </p><p style="margin-top: 0">hit by the outage reported that their resulting losses were more </p><p style="margin-top: 0">than $40,000 per hour of resulting downtime, and some indicated </p><p style="margin-top: 0">they lost more than $1 million each hour there was no </p><p style="margin-top: 0">power. Some companies reported that the outage disrupted deliveries </p><p style="margin-top: 0">from suppliers and deliveries to customers. In Michigan, </p><p style="margin-top: 0">cascading consequences were reported even outside the blackedout </p><p style="margin-top: 0">area as a result of delayed and extended delivery times for </p><p style="margin-top: 0">parts and materials, particularly disrupting for manufacturing </p><p style="margin-top: 0">operations with JIT scheduling. </p><p style="margin-top: 0"></p><p style="margin-top: 0">Taking the Necessary Steps </p><p style="margin-top: 0"></p><p style="margin-top: 0">In managing risk, there are three fundamental truths: </p><p style="margin-top: 0"></p><p style="margin-top: 0">1. Only a working crystal ball would enable us to predict all </p><p style="margin-top: 0">the risks that our organization might face in the future. </p><p style="margin-top: 0">2. We cannot fully control risks. </p><p style="margin-top: 0">3. By developing and maintaining an enterprise- wide business </p><p style="margin-top: 0">continuity program that includes all internal and external </p><p style="margin-top: 0">components of the supply chain, we can prepare to manage </p><p style="margin-top: 0">risks in order to continue meeting stakeholder expectations </p><p style="margin-top: 0">when disasters occur. </p><p style="margin-top: 0"></p><p style="margin-top: 0">If we can agree that disasters are inevitable, it would </p><p style="margin-top: 0">seem logical that we must also agree that it is wise to take the </p><p style="margin-top: 0">necessary steps to manage our risks to the extent possible and </p><p style="margin-top: 0">to reduce the effects of disruptions through planning and preparedness. </p><p style="margin-top: 0">In my work with clients, I have undertaken the mission of </p><p style="margin-top: 0">integrating the internal and external supply chain links in continuity </p><p style="margin-top: 0">planning, and it has often been a hard sell. Fortunately, </p><p style="margin-top: 0">that is changing as there has been a realization that the supply </p><p style="margin-top: 0">chain from procurement through delivery is the revenue source </p><p style="margin-top: 0">for most companies and is directly tied to cash fl ow, profi tability, </p><p style="margin-top: 0">growth, and the related intangibles such as protection of the </p><p style="margin-top: 0">brand, customer trust, and stakeholder confi dence. </p><p style="margin-top: 0"></p><p style="margin-top: 0">There is a growing awareness that a disaster that impacts </p><p style="margin-top: 0">the supply chain is a disaster for the entire company. Incidents </p><p style="margin-top: 0">affecting the supply chain were often overlooked in earlier business </p><p style="margin-top: 0">continuity planning, but this is changing. One indication of </p><p style="margin-top: 0">the increasing realization of the vulnerability of today&#8217;s supply </p><p style="margin-top: 0">chains and the importance of fully including the supply chain </p><p style="margin-top: 0">in all aspects of risk management, including business continuity, </p><p style="margin-top: 0">came at the Institute for Supply Management (ISM)&#8217;s 95th </p><p style="margin-top: 0"></p><p style="margin-top: 0">Annual International Supply Management Conference and Educational </p><p style="margin-top: 0">Exhibit, held in April 2010. The conference included a </p><p style="margin-top: 0">risk management track with daily workshops focused on connecting </p><p style="margin-top: 0">risk management to supply chain management. In addition, </p><p style="margin-top: 0">the four- day event offered two half- day sessions dedicated </p><p style="margin-top: 0">to business continuity and the supply chain. </p><p style="margin-top: 0"></p><p style="margin-top: 0">I have specialized in business continuity, disaster recovery, </p><p style="margin-top: 0">and emergency management consulting for twenty years. </p><p style="margin-top: 0">I have been a Certifi ed Business Continuity Professional with </p><p style="margin-top: 0">the Disaster Continuity Institute since 1998 and a fellow of the </p><p style="margin-top: 0">Business Continuity Institute since 2002. I&#8217;ve worked with utility </p><p style="margin-top: 0">companies, luxury fashion goods companies, a hot sauce </p><p style="margin-top: 0">manufacturer, a PVC pipe manufacturer, a division of a car </p><p style="margin-top: 0">manufacturer, and government agencies, among other organizations. </p><p style="margin-top: 0">I&#8217;ve watched as business continuity has matured to become </p><p style="margin-top: 0">what it is today, and I have witnessed what works&#8212;and </p><p style="margin-top: 0">what doesn&#8217;t&#8212;when developing and maintaining a successful </p><p style="margin-top: 0">continuity program. In A Supply Chain Management Guide to </p><p style="margin-top: 0">Business Continuity, I want to pass along my lessons learned by </p><p style="margin-top: 0">providing a resource for all those who want to better manage </p><p style="margin-top: 0">supply chain risks. I would also like to raise awareness of the importance </p><p style="margin-top: 0">of business continuity planning as an enterprise- wide </p><p style="margin-top: 0">issue that must include the supply chain to fulfi ll its purpose. </p><p style="margin-top: 0"></p><p style="margin-top: 0">My goal is to provide an easy-to-read, easy-to-understand </p><p style="margin-top: 0">book that focuses on supply chain business continuity within the </p><p style="margin-top: 0">framework of an overall business continuity program. While the </p><p style="margin-top: 0">terminology used is corporate- centric, the principles and planning </p><p style="margin-top: 0">methods can be applied in all types of organizations, large </p><p style="margin-top: 0">and small, including not- for- profi ts and government agencies. </p></body></html>

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