Companies Seen Struggling to Balance Lean with Supply Chain Risk Management

Tempe, AZ — February 12, 2007 — Supply chain executives must devote increased attention to managing the risk of disruptions even as they balance business continuity with the needs of increasingly lean supply chains, according to a recent study from industry think tank CAPS Research.

Unexpected events and natural disasters have significant impact on business operations, and the very nature of these tragedies have forever changed how businesses plan for disruptions. In addition to all of the natural disasters ranging from floods to flu pandemics, businesses must continuously plan for other types of potentially devastating unnatural disasters ranging from war, terrorism and power outages to industrial sabotage and software virus attacks.

Managing supply chain continuity has become even more important with the recent intense focus on "lean" business processes and supply chains. Across the globe, businesses have found themselves facing a difficult question: How can we ensure supply arrives on time, in the quality and quantity expected, while at the same time enjoying the benefits of lean practices?

Principles of Continuity Planning

In the recently published CAPS Research report, "Business and Supply Chain Continuity," author George A. Zsidisin, Ph.D., C.P.M., of Michigan State University, writes that business continuity plans include emergency response plans, which consist of detailed plans for responding to an actual emergency, and business recovery plans, which describe how the firm will recover as quickly as possible to sustaining operations.

In the report, Zsidisin notes that it is difficult to justify the efforts and investments involved in business continuity planning unless senior management is fully engaged. These executives must commit resources to the process, use known metrics for accountability and provide guidance as these initiatives progress.

Other basic principles of business continuity planning include ongoing preparedness that requires briefings on training, assessments of business and corporate goals and security awareness; risk assessments to ensure minimal impact on the supply chain; and speed and responsiveness to minimize response and recovery times.

Another important component of the business and supply chain continuity plan is building relationships with suppliers, but how involved should the purchasing firm become in developing or managing suppliers' plans? This question is especially relevant under the requirements of Sarbanes-Oxley (SOX) guidelines to communicate known risks. In the end, supplier engagement, buy-in and enthusiasm are important for working together to ensure business and supply chain continuity, Zsidisin concludes.

This report is based on a CAPS Research Critical Issues Event in Tempe, Ariz. The CAPS Research report "Business and Supply Chain Continuity" is available (registration may be required) at http://www.capsresearch.org/publications/pdfs-protected/cir012007.pdf.

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