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Supply Chain Interruption: How to Be Ready When It Strikes

Learn how to avoid or mitigate the risks of supply chain interruption.

Supply chains are the lifeblood of almost every business, making the entire global economy possible. Yet recent crises and natural disasters show that supply chain interruption is a growing threat to companies that, like GE, are manufacturers, suppliers of critical components, and retailers that source globally. As companies implement just-in-time delivery and lean manufacturing processes, interdependencies arise that increase vulnerability. Events out of your control can end up wreaking havoc upon your business continuity, damaging your ability to operate, your bottom line, and your reputation.

Key Takeaways
  • With the increasing prevalence of just-in-time delivery and lean manufacturing practices, supply chains are more vulnerable today than ever, creating a growing risk to your business's continuity.

  • Map out your company's vulnerabilities and work in partnership with your suppliers to reduce and control potential risks.

  • Work both internally and with suppliers to develop plans for responding to supply chain interruption. These plans should be simulated with your suppliers and modified accordingly in a continuous-feedback loop.

Compliance and Ethics: 3 Steps to Get Your Company on the Right Track

"Events during the last five years have really exposed how vulnerable supply chains can be, and the damaging effect these vulnerabilities have on fulfillment," says GE's Executive Sourcing Leader of Global Logistics Mark Chadwick. "Volcanos, strikes, piracy—we've seen it all in recent times, and as a result, we've learned that advance contingency planning is essential."

How do you maintain operational flexibility while avoiding (or mitigating) the risk of disruption? Here's a four-step process for effectively managing supply chain interruption:

1. Map out your supply chain. This process will help you fully understand where threats exist. Identify your key suppliers and analyze the impact on your business if they were disrupted. You may even need to ask your key suppliers who their suppliers are. Your job here is to fully understand potential breaks in the chain.

2. Work internally to limit vulnerabilities. Follow good risk-management practices by diversifying your sourcing strategy. If you have one supplier for a key component, seek out a second or multiple suppliers for the same component and engage with those potential suppliers now. Don't wait until your sole supplier is disrupted. "We strive to ensure that none of our components are single sourced," notes GE's Chadwick, "and on the rare occasion that, due to patents, they may be, we secure safety stocks at strategic locations."

3. Work with suppliers to develop business continuity. A key component of preparing for supply chain interruption should be your supplier selection process. From the first contact, ask prospective suppliers to fully detail their contingency plans for chain interruption, then have a dialogue to integrate your company's continuity needs into your suppliers' plans. "It's essential to ensure that key service providers are diligent and have well maintained plans in place," explains GE's Chadwick, "and as a core requirement in all of our contracts, we ask that our suppliers and service providers have—and maintain—updated plans to respond to critical interruptions to their supply chains."

4. Test your continuity plans. Work with your suppliers to simulate a crisis and implement your continuity plans. If you discover problems during simulations, modify the plans accordingly. Everyone involved should know their roles in advance and be able to automatically execute them. When business continuity is at risk, you'll need to respond immediately. Having a comprehensive plan and trained people in place long before any crisis occurs is your best way forward. "Now more than ever, we see our strategic suppliers as partners," concludes Chadwick. "Their quality and service performance are essential to our meeting the needs of our customers."

Your preparation for and reaction to supply chain interruption are in your control, so equip yourself with a continuity plan sooner rather than later.

The information herein should not be used or taken as business, financial, tax, accounting, legal or other advice, or relied upon in substitution for the exercise of your independent judgment. For your specific situation or where otherwise required, expert advice should be sought. The views expressed above are not necessarily the views of GE Capital or any of its affiliates (together, "GE"), and should not be deemed as a recommendation to purchase or sell any securities or investments mentioned. Although GE believes that the information contained above has been obtained from and is based upon sources GE believes to be reliable, GE does not guarantee its accuracy and it may be incomplete or condensed. GE makes no representation or warranties of any kind whatsoever in respect of such information. GE accepts no liability of any kind for loss arising from the use of the material presented in this publication.