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Supply chain risk management: 5 ways to protect your business from natural disasters

Palm trees bend as urban area hit by storm

As natural disasters like hurricanes, floods and wildfires dominate news headlines with growing frequency, it's no surprise businesses in every industry are recognizing the importance of being prepared for them. But if you're like most business owners, when you start to look at the process of putting a prevention and preparedness plan in place for a supply chain disruption, the details can be overwhelming.

"When you consider all of the different resources that go into supply chain planning and compound that with trying to anticipate where a natural disaster might strike, it can be very daunting," says Chandra Seymour, senior vice president at Marsh, a global risk management and insurance broker firm. "It's easy to play down the risk and say, 'That's not going to happen to us'."

Not planning for a natural disaster won't save you from one. In fact, it means that if one occurs, it may take your business longer to get back online. And, in many cases, it also means you're giving an advantage to your competitors. Businesses that want to stay ahead of supply chain disruptions will want to act on these five expert supply chain risk management recommendations.

1. Embrace supply chain transparency

"Gaining visibility is a core building block of being able to identify and evaluate risks to the supply chain," says Derek Hanson, senior vice president at Marsh. "Do you need additional risk transfer solutions such as insurance or more redundancy? What about additional inventory? Supply chain transparency supports making the most appropriate risk management decisions and assessments around how far you need to take each activity."

Improving transparency in the supply chain, such as carefully mapping out your existing supply chain details or sharing data between partners, can help you track goods and easily re-position inventory or re-direct goods if needed. It will also highlight the most important cost-benefit decisions to make for your business during each event. This will allow you to quickly identify what to do when weather impacts certain locations.

Transparency also quickly becomes a competitive advantage that allows you to recover operations faster, especially when you're using the same suppliers as your competitors but you're more informed.

2. Take on extra resources strategically

When a natural disaster threatens your supply chain, you may need to take on extra resources to mitigate the impact. Whether your transportation networks are threatened by inclement weather or entire locations are compromised by fire, flooding or hurricane, strategically placing extra resources in different locations can help you stay operational longer and recover quicker.

"Business continuity planning is essential because it allows you to map out your internal processes and figure out what you rely on internally versus externally," says Seymour. "If you simply can't make the product without Widget A, you know what is most critical to you, and you can more accurately anticipate the consequences of a supply chain disruption."

Once your critical components are identified, you can make plans to house them in different locations so they're easily accessible.

“A great example of strategically taking on extra resources is the informed approach many pharmaceutical companies take toward supply chain planning during disasters,” says Hanson. “When a company knows how long it would take to recover a location that produces a key drug – the weeks to months it would take to rebuild the facility and go through the qualification process – they can create a more accurate plan to carry additional inventory elsewhere within the supply chain to mitigate that risk.”

3. Use a variety of suppliers

While using a sole provider can be tempting because of the potential cost advantage and added efficiency, spreading your supply chain among different suppliers is another lever that can mitigate risk.

"Standardizing your components and working with more than one supplier are strategies that will give you the benefit of being able to support your key customers after a natural disaster," says Hanson.

Of course, you may also want to ask your suppliers to share the burden with you. "We're also seeing organizations assess supplier risk management by asking their suppliers what they've done about business continuity in the wake of a disruption," says Seymour. "If a supplier looks like they're based out of Florida, but in reality they've put alternate plans in place to source from locations across the country, it adds an extra layer of resiliency and security."

4. Map out multiple transportation options

"After a disaster, there is often competition for limited transportation resources," says Hanson. "If you think through different transportation options before disaster strikes, you'll have quicker access to those alternative routes before transportation becomes an issue and you'll have the first mover advantage."

When you have alternative routes already planned out, periods of disruption from superstorms or inconvenient delays won't disturb your business as much. You'll also be able to anticipate delays and work to avoid them before they threaten the customers relying on you.

“In one example, we had a large retail client ship their holiday season merchandise into New York,” says Seymour. “When they found out the New York port was going into a major strike, they were able to quickly reroute to Los Angeles and organize transcontinental shipping from there. Because the plan was in place for any shutdown – natural and otherwise – they didn’t have to worry about not having access to their products.”

Without this kind of planning, a supply chain disruption may send you into a reactive mode, "You'll be behind the curve before you even register what's happening, and you may not know your vendors are in a hot zone until your order doesn't show up a week later," adds Seymour.

5. Back up your trade-related documents

Finally, don't limit your risk mitigation planning to transportation and raw materials. Your digital and physical business documents are susceptible to natural disasters, too, and can cause significant problems if lost or destroyed.

"Many organizations still need to keep hard copies on file for regulatory or audit requirements," says Hanson. "Even if your organization is moving away from paper, electronic data is still susceptible to physical destruction." Look into options for data backup in the cloud and in third-party document storage so you can avoid the consequences of not having those documents available.

While natural disasters like hurricanes are seasonal and provide some level of advance warning, it's impossible to predict what is around the corner. That's why at the end of the day, successful supply chain risk management is an executive-level conversation that takes into account the entire future of an organization. Because only when you identify what's most important to your company can you create plans that secure your complex supply chain and explore the mitigation options available. This can protect your brand and reputation, market share and revenue.

"Regardless of what scenario causes the disruption, you need to ask what the impact will be on your people, technology, physical assets and relationships," says Hanson. "Supply chain risk management planning that focuses on each of these resources will help your organization anticipate the consequences of a natural disaster and quickly respond to a disruption when it does happen."

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