It seems like the world is experiencing an increase in natural and man-made disasters large enough to disrupt supply chains. If your company is part of a supply chain, you need to have contingency plans for coping with breaks in deliveries of parts or finished goods.
For example, this year's disastrous Japanese earthquake and tsunami wrecked supply chains around the world. Japan exports electronic parts used in everything from copy machines to automobiles. Both domestic and foreign automakers are just now starting to recover from the impact of shortages and price hikes. Lead times for many parts are still measured in weeks and months. If your company supplies goods into the automotive supply chain, chances are your business has slowed as a result of the industry-wide issues associated with the earthquake. Closer to home, in 2005 Hurricanes Katrina and Ike dramatically affected Louisiana, Texas, Alabama, and Mississippi. Many commodity products that flow through the port of New Orleans couldn’t get to their final destination by their due date. More critically, building materials and supplies needed to house and feed the millions of displaced people were diverted from other parts of the country to the Gulf Coast. I have a client that manufactures mattresses. They have a plant in Texas and warehouses in New Orleans and Houston. After the hurricanes, mattresses were suddenly in high demand to replace the ones destroyed in the storms. One of the materials that mattresses are made of is a high-density foam available from only a few suppliers -- who couldn't meet the spike in demand. This created a supply chain nightmare for U.S. bedding manufacturers, driving up prices some 200 percent for about six months. Similar stories were repeated in other industries, including lumber, sheetrock, and other home-building materials as well as consumer necessities. How your company is affected by a disaster is largely determined by whether your company is in the hardest hit areas or simply a customer of companies that are in hard-hit areas. After Katrina, my mattress manufacturer client immediately moved almost all its New Orleans employees to Texas, housed them and had them work in the factory which went to a 24/7 schedule to keep up with the orders they were getting from the hard-hit areas. The company did lose much of the inventory in its New Orleans warehouse to looters. Management made the decision to truck inventory from the Central Texas manufacturing facility directly to Southern Louisiana because their New Orleans facility needed substantial repairs. And due to hikes in the price of foam, they had to pass on substantial price increases to their retail furniture and mattress store customers. Given these kinds of disruptions, many large companies are starting to rethink JIT inventory. Small companies that are part of big company supply chains are now being asked to stock more finished goods ready to ship. Here are a few tips to help you cope with supply chain disruptions: If your business is in an area that is prone to large natural disasters (earthquakes, tsunamis, and hurricanes) you should have a contingency plan to move your operation quickly to a location outside the affected area. Telephone and Internet changes are made easier if you use an Internet-based IP phone system.
Because hurricanes offer more warning than other kinds of disasters, it is much easier to institute a hurricane disaster plan. If your company operates in a hurricane-prone area you should formulate a written plan to mitigate losses and potentially move your operation.
Quickly assess the effects of the disaster on your suppliers. You may need to have back up suppliers in place as a part of your contingency planning.
Assess the effects of the disaster on your customers. If your customers are significantly concentrated in the affected area, you may need to figure out where you can transfer sales to non-affected areas. You may also want to help your customers recover so they can again be viable for buying your goods.
If you buy from suppliers, try to have several sources located in differnt areas, so that a single disaster can't interrupt your flow of raw materials or parts.
Most importantly, make sure any contract you engage in has a “force majeure” clause. This provision allows any party to the contract to deviate from the terms of the agreement in the case of an act of God or man-made disaster. Most larger suppliers will already have such a provision in their agreements.
Sam Thacker is a partner in Austin Texas, based Business Finance Solutions. You can reach him via email at sam@lesliethacker.com or on Twitter @SMBFinance.
Source : http://www.allbusiness.com/finance/16188706-1.html