How to leverage logistics in times of crisis
Proactively creating a continuity plan tempers operation problems during a disaster.
When something major disrupts the supply chain, it’s imperative to have a logistics plan in place. Stakeholders save time and effort, and minimize chaos, by immediately turning to their playbook and communicating with those affected.
A supply chain crisis could be weather-related (a tornado, snowstorm, earthquake or flood), human (union strike) or a fire destroying a warehouse. No matter the cause, companies that react quickly will be able to continue operating their business with the least amount of disruption. But that requires planning.
Major companies are doing this type of advanced preparation, but “I don’t know that small or medium size businesses, ones with a $20 million supply chain spend are really spending a material amount of time on this,” says David Broering, senior vice president of NFI Supply Chain Solutions. “They’re spending more on the safety of employees versus on goods, transportation infrastructure or capacity. Transportation is a very reactionary business” when it comes to crisis management.
Develop a continuity plan
Whether you call it a continuity plan, a disaster recovery plan (DRP) or a supply chain toolkit, it’s important to gather various stakeholders together to talk through possible crisis scenarios. Leadership plays a huge role in this, as back-end support is mandatory.
At Holman Parts, a supplier and distributor of automotive power trains to car dealerships and fleet customers, Logistics Manager John Conte says company representatives from every team come together for the planning. That includes entry level warehouse, drivers, operations supervisors and vice presidents.
In the meeting, they walk through what happens in each step of their supply chain process, and document it. They talk about what happens if a certain system goes down, if the product isn’t accessible, if a warehouse has a fire or if they lose internet.
A continuity plan, redundancies, and a battle box, at minimum, should help build a more resilient supply chain.
Supply Chain Dive
By having the stakeholders at the table, it’s easier to understand how each role affects the others. It’s a domino effect - each part of the supply chain affects others. They come up with a plan for each scenario, so that the business can continue to operate in a crisis. After the planning session, they create a flow chart and then do risk analysis.
The last step is to perform table-top exercises to make sure the plans will actually work. These sessions can be eye-opening, with stakeholders coming into the meeting with one idea, and then realizing what details are missing. They discuss which department should be up and running first. “A lot of people don’t think of IT as a department, but we need internet. We need Outlook, and then we need our ERP,” says Conte.
Holman Parts asks its business partners about their continuity plans as well. Given how much sensitive information they store in the cloud, including customer information, they’ve put measures in place to ensure they aren’t hit with ransomware or data loss.
They want to ensure that their partners are doing the same. “Our partners, like freight carriers, are an extension of our supply chain,” says Conte. “We ask them on our initial SOP, do you have a business continuity plan? What if your systems go down?”
Creating redundant systems
One part of the supply chain toolkit should be creating redundant systems. That might mean having enough safety stock on hand to continue operating your factory for a few days, if supplies are cut off or trucks can’t get through. “Focus on what you absolutely have to do to minimize demands on partners, in terms of supply,” says Broering.
It might also mean having back-up warehouses in other cities to store products, in case the main distribution center is inaccessible. While Holman Parts maintains seven warehouses in various parts of the country, they also store high-turnover products in limited quantities, at several 3PL warehouses - enough to support business needs for 12-24 hours. That’s partly to serve customers in those areas, but it’s also for back-up, in case their other warehouses are disrupted. Conte says they also keep spare vehicles on location.
Since customers have expectations of quick delivery, keeping the supply chain flowing in a cost-effective and timely manner is essential to Holman Parts’ business. Being able to place orders for a vendor to drop-ship to a customer is part of their continuity plan. “You want to limit the exposure to the customer,” Conte says. If a blizzard hits the East coast, the California customer shouldn’t be affected.
If you call a partner you’ve never worked with before, you’re just another guy.
Logistics Manager, Holman Parts
Logistics managers can decrease transportation problems in times of crisis by qualifying multiple tiers of carriers in advance. However, Broering suggests conducting some business with the various carriers, in addition to just qualifying them, so they understand your needs.
“If you call a partner you’ve never worked with before, you’re just another guy,” he says. Instead, you need a working relationship with second or third tier partners across any needed mode, like LTL, air freight or expediters. Yes, you’ll pay a premium if you’re not a regular partner, but that could make a difference between having access to more affordable transportation during a crisis, and getting gouged or having to scramble.
Of course, key redundacies also include software and storing updated data offsite each day. That way you won’t lose a week or month of transactional history. At most, you’ll lose a day and can get up and running almost in real time.
Create and update the battle box
After the contingency plan is created, all documents should be available to contact the key people at a moment’s notice.
Holman Parts creates “battle boxes,” a term for the documents and laptops given to leadership if there’s a crisis and they can’t access the building. This allows them to work at home or off-site.
Each company should create what works for them, whether it’s a binder, file or laptop. It contains whatever the company needs in the first few hours to keep the business going. Examples may include employee home or mobile phone numbers and customer information.
Holman updates their contingency plan once a quarter, assigning the job to each department’s project coordinator. Any time there’s a change, the coordinator should update the information. They conduct the table-top sessions a few times a year.
Activating the crisis plan
While a crisis toolkit may contain various action plans, it still requires decision making when implementing it. Some crises are reactionary, like an earthquake or fire. Other times, with pending hurricane or snowstorm, you may get a few days to plan.
Conte says that typically he’ll hold a management meeting to decide how to scale the reaction. Talking with freight customers can help make the decisions – if they’re not going to put drivers on the road, that affects what his company does. He also proactively communicates with customers. Holman looks at what products they have on hand, what orders are coming in and then handles customer orders on a one-off basis.
Companies can create their own logistics toolkits, or hire a consulting company to help. FEMA offers business continuity training courses, and supply chain college programs offer courses on risk and emergency management as well.
However, having a toolkit ready with a continuity plan, redundancies, and a battle box, at minimum, should help build a more resilient supply chain.
Editor's Note: This article is part of a series on supply chain risk management. Click on each function below to read how your department can help build resilience.
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