Companies that rely on consistent supply chain functions to manufacture their products are often at serious risk in the case of a natural disaster. Many are feeling the effects of Hurricanes Harvey, Irma, and Maria, or dealing with earthquakes in Mexico and record-breaking blizzards all over the United States.
Some estimates put the average global economic loss from natural disasters at around 175 billion U.S dollars, and some companies have reported losing hundreds of millions from the hurricanes last year.
Despite the known economic impact and losses associated with these kinds of disasters, many companies still aren’t fully prepared for such a disruptive event.
How Natural Disasters Impact Businesses
A natural disaster, from a business standpoint, can be defined as an event that has a very low chance of occurring, but a huge impact on operations.
Your company may never directly experience these types of disasters, but that doesn’t mean you won’t feel the indirect impact of something that may have happened hundreds or thousands of miles away. These events don’t have to strike your company’s physical location to grind operations to a complete stand-still. If the disaster impacts any part of the supply chain, it could cause real problems.
When a natural disaster strikes your supply chain, a lot of things can go wrong. At the very least, a company can expect:
- Delayed transportation and deliveries because highways, ports, and rail lines have been destroyed or damaged enough to render them inactive.
- Broken supply chains that result in lost profits and lost customers.
- A sudden lack of energy generation that can reduce a company’s ability to produce at full capacity. In fact, even a short loss of power can shut down a clean room for at least a day to get back to clean.
- Shortages in raw materials (which can also lead to higher costs).
- Damaged plants or other facilities become inoperable.
- Bottlenecks at certain points in the supply chain as certain materials remain available while others do not.
- An inability to communicate with the supply chain, partners, suppliers or customers, to make them aware of the situation so they can improve their preparedness for the upcoming situation
What It Really Means for Businesses
The combination of uncertainty and total disruption of business processes presents several challenges for businesses. However, risk management practices are often focused on more immediate and predictable threats.
Preparing for the potential threat of a natural disaster will require a little more forward-planning.
In order to avoid many of the situations listed above, companies may need to pre-position their inventories, create plans for responding quickly to the unexpected, and set up a structure for procuring the necessary materials and equipment when needed.
There are also several regulatory that need to be considered, too. If you have to move to a new plant, there may be several FDA requirements and a range of validation processes that can impact the relocation.
What Do You Need to Know Before a Disaster Strikes?
Is your company really prepared for the worst-case scenarios? Answer the following questions to determine where your company currently stands.
- Will you be able to maintain production at the required levels if one or more vendors are suddenly unable to provide their products or services?
- Do you have arrangements with alternate producers who can step in and provide materials if one of your current sources is no longer able?
- Do you have a stockpile – or can you build up sufficient stock – of products that you can use to fill demand until production returns to normal?
- Can you quickly and effectively communicate to your customers, partners, and suppliers, that a slowdown is happening, and certain actions will be taken to compensate for it?
Risk Management for Natural Disasters
The potential for major disruption in the supply chain means that natural disaster planning should be an integral part of your risk management activities.
In other words, companies need to accept that the risk actually exists, rather than ignoring it because of its low probability.
Natural disaster risk management practices include:
- Defining your plans to prevent or reduce the impact of a disaster.
- Determining how you can minimize risks by sharing or transferring business activities, manufacturing lines, and more.
Precision Concepts takes risk management very seriously and have procedures and plans in place to mitigate those risks at both our Costa Rica and North Carolina locations. We take all the necessary actions to protect our customers’ business by strictly following our business recover/continuity plan.
How Companies are Implementing Their Plans
Many companies do understand the critical nature of this type of risk management and have taken steps to implement their plans.
Some of their activities include:
- Diversifying plant locations so even if one line goes down, the other can pick up the slack.
- Ensuring that designs and operations data can be moved to a different location along the supply chain.
- Ramping up production in other locations to compensate for locations that can no longer produce at the same level.
- Adding traceability to the entire supply chain, so the status of shipping and production can be reported in real time.
- Installing power generators on site so they can remain self-sufficient.
- Dispersing supply chain information between different locations, such as the HQ, the main factory, and any overseas plants.
- Conducting regular risk analysis on the plants and making sure there is a plan for dealing with natural disasters.
- Building a stock of supplies to cushion the blow of unexpected logistical challenges.
- Validate the processes at other facilities to reduce the time required to deliver.
Natural disasters are devastating events. But if you take the time to make a plan and put it into action, you will have a much better chance to make a strong recovery and resume business operations.