Posts Tagged ‘Supply chain’
I just read an article in the Disaster Recovery Journal entitled Business Continuity’s Role in Supply Chain Resilience. The article reminded me that, even when entire business processes are outsourced, the business continuity planners at your company are still responsible for oversight of the business continuity plan. The recent floods in Thailand, and the resulting supply-chain problems in the disk storage industry, are another great reminder.
Leading up to the year 2000, most forward thinking companies required their suppliers to certify Y2K compliance. As a result, the Y2K bug impacted companies’ operations very little. The risk was real, but managed. Now that companies are outsourcing more and more of their supply chain to contract manufacturers and more of their business processes to BPO specialists, they risk losing both visibility and control over business continuity.
Whether your supplier provides components, such as disk drives, or services, such as payroll and accounting, it’s critical to understand your suppliers’ capabilities to withstand and recover from disasters. So here are six questions to ask your suppliers:
- Who is responsible for disaster recovery planning?
- What disasters are you prepared to withstand from this location?
- When will the supply chain or service be restored, after a disaster strikes?
- Where is your disaster recovery site located?
- Why did you choose your particular approach to disaster recovery?
- How frequently do you test your disaster recovery plan?
This is in no way a complete list, but it is at least a start in helping to focus not only on the quality and price of outsourced goods and services, but also the reliability of the supply chain and how your suppliers think about and plan for business continuity.
This year, 2011, has been a year of tremendous natural disasters. It began with heavy rainfall in January in Queensland, Australia, and Rio de Janeiro Brazil, causing flooding, landslides, and crop losses. An earthquake in New Zealand followed in February, causing building collapses and an estimated $12 Billion in damages. Japan’s earthquake and tsunami in March resulted in the loss of an estimated 20,000 lives, massive destruction of buildings, loss of power and disruptions to transportation systems, a hurricane in the Eastern United States left 7 million people without power for days and many without power for weeks. Floods in Thailand that began in the summer and continued into December, flooded the capital, killed more than 500 residents and disrupted the lives of millions. In August, an earthquake rocked Virginia and shook buildings as far away as Massachusetts. And a rare October snow storm hit the North Eastern United States, leaving millions without power for days.
In all of this tragedy, there are some important observations:
- Disasters will strike where they are expected, such as the earthquake in Japan, and where they are not, such as the earthquake in Virginia.
- Disasters will strike when they are expected, such as hurricanes in the late summer, and when they are not, such as massive snow storms in the fall.
- Localized disasters, such as the floods in Thailand, can have far-reaching effects, such as the global disruption of the supply chain for disk drives.
The science that enables the prediction of the location, the size and the effect of natural disasters is improving, but it is far from perfect. The local impact of natural disasters is increasing, because people and businesses are migrating into a massive urban areas. The global impact of natural disasters is increasing, because the supply chain is highly specialized into centers of expertise, but at the same time is globally interconnected and interdependent. Because of this specialization, a flood in a relatively small country can impact the global availability and price of products for which the country provides a single, but critical component.
Perhaps the most valuable lesson in all of this tragedy is that a highly efficient global operation that concentrates capabilities into unique centers of expertise, leaves itself exposed to massive disruption from localized disasters and their impact on infrastructure and the workforce. One of our customers has reduced this risk by creating dual centers of expertise, separated not by hundreds of miles, but by half the globe. With the help of Axxana, these dual centers will operate not only highly efficiently, but 100% in synch. Perhaps it is time to re-think your strategy as well.
Imagine you make cars, and 80 percent of your parts come from 20 percent of your suppliers. The parts are packed in containers and delivered to your manufacturing location on ships. Imagine there was a disaster, like an earthquake. Your biggest suppliers have great contingency plans that ensure a seamless flow of components, so you can make cars. But one of your suppliers, not one of the big 20%, was affected, and couldn’t ship parts for several months. Oh, well, it’s not that important. Just apply the 80/20 rule.
The 80/20 rule, which is also known as the Pareto Principle or Juran’s Pareto Principle, doesn’t always work. The rule originated from an analysis of wealth distribution by Italian economist, Vilfredo Pareto, who estimated that 80% of the wealth in his country was controlled by 20% of the people. Dr. Joseph Juran, who was a pioneer in quality management, applied Pareto’s analysis to quality management challenges, determining that 20% of the factors account for 80% of an outcome. In manufacturing, this might mean that 20% of your suppliers account for 80% of your output potential, so in supply chain disaster preparedness, companies logically place the bulk of their focus on the 20% of companies that supply 80% of the parts. Unfortunately, according to Patrick Brennan, in his article, Lessons Learned from the Japan Earthquake, published this summer in the Disaster Recovery Journal, Lesson 1 was “Don’t Apply the 80/20 Rule to Supply Chain Disaster Preparedness.” The 80/20 rule doesn’t work.
When the lack of availability of a $1 part prevents a company from making a $30,000 product, something needs to change.
The same error occurs when attempting to apply the 80/20 rule to the value of data. While it might be convenient to believe that 20% of your data accounts for 80% of the value, the loss of even a small amount of data, can have an enormous effect on the output of an analytical process or on the reputation of an organization. Imagine, for example, that a disaster destroys the last 3 minutes of data, and one of those pieces of data was an email that provided critical evidence to defend against a shareholder claim, or it was a buy order for fuel in a rising fuel market, or it was a change to a medication order for a critically ill patient.
You can’t always determine in advance, which data will be valuable. Therefore, it is best to provide complete protection to all data. If it’s important enough to keep, it’s important enough to protect. Fortunately, we make complete data protection both possible and affordable.