The lack of supply of any material or service can potentially completely paralyze a company’s operations unless it has a robust plan to identify, mitigate, or eliminate each of the risks.
In recent months, ManageArt has developed Business Continuity Plans (BCP) for some of our clients. A BCP involves analyzing all the risks that can impact business continuity, estimating their probability, impact, and severity, and establishing contingency plans to mitigate each of the risks.
Risk assessment is the key factor in a BCP
The starting point of any BCP is analyzing the current and future revenue sources of the company. Analyzing current revenue helps identify which products are key to generating income and margin. However, in innovative sectors such as the pharmaceutical industry, it is crucial to incorporate the concept of BCP into the development of new products because they would constitute the basis for future revenue.
Once the products that form the current and future foundation of the company’s business have been identified, a risk map needs to be obtained. The objective of the risk map is to identify all the factors that affect the availability of these products. The complexity of supply chains makes it challenging to identify these factors and assess their value. At this point, it is crucial to be able to differentiate the origin of the supply for each product and address the BCP accordingly.
Risk assessment of products manufactured in own plants
In the case of products manufactured in our own production plants, the Business Continuity Plan (BCP) should delve into understanding which components or raw materials are necessary for production. It should also analyze the facilities and resources used (production facilities, key personnel, suppliers, etc.). Once the necessary materials and resources are identified, the BCP should address, resource by resource, what alternative supply options the company has.
Production facilities and the personnel operating them are crucial factors for production. If the company has multiple production facilities, it should be assessed whether the products can be produced interchangeably in various plants, and what actions should be taken to temporarily absorb production if necessary. In the case of not having multiple production plants or for products that cannot be produced in other plants, the impact of any contingency on the production plant should be analyzed in more detail, and a plan should be developed to mitigate those risks and address any potential contingency.
Regarding suppliers of raw materials, materials, and services, the BCP should analyze the level of reliability of current suppliers and explore alternative supply options in the market. Additionally, it is necessary to assess whether these alternatives need to be pre-approved before their use, how long it takes to approve them if needed, and what safety inventory is required to facilitate the change of supplier.
The BCP should go further and understand the source of supply from the supplier, whether they manufacture it in a single production plant or multiple plants, and ultimately, what business continuity plans the supplier has in place.
After a thorough analysis, the most important part of the BCP is the implementation of mechanisms to activate the defined contingency plans and knowing the recovery time for the activity.
Risk assessment for products manufactured by third parties
When it comes to products manufactured by third parties, BCP appears to be simpler, yet more complex to assess and implement. The apparent simplicity lies in the fact that each product is a single reference, rather than a list of components as in the case of products manufactured in-house. In this scenario, the BCP alternatives rely on evaluating the option of having multiple suppliers for each product or increasing inventory to cover a supply incident and prevent it from affecting the business.
However, a good BCP requires delving into the supply chain of the suppliers and understanding the level of risks and coverage they have for their own supply and production risks. In other words, a BCP needs to analyze the BCP of each supplier. To achieve this, the BCP should establish a standardized procedure for evaluating the BCP of each supplier and demand an appropriate level of prevention based on the relevance of the product or set of products supplied by the provider. However, it is not necessary to impose the same level of BCP requirements on a strategic product supplier as on one that supplies minor or complementary products.
The standardized procedure for evaluating suppliers should include the same criteria that would be applied in assessing the BCP for products manufactured in-house. Aspects such as the availability of a risk map, assessment of risks based on their probability and severity, defined measures in each case, etc., should be evaluated.
Establishment of contingency plans
Each risk and resource require different contingency plans.
In the case of productive resources, different risks such as breakdowns, damages, fires, floods, etc., should be evaluated, and possible alternatives should be considered. These alternatives can range from having a plan for acquiring critical spare parts to considering manufacturing in different equipment, production lines, or facilities to mitigate risks of severe breakdowns, floods, or fires.
For evaluating risks associated with critical human resources, an assessment of activities and the individuals capable of performing them should be conducted. This helps identify weaknesses in the versatility of personnel and allows for the development of training plans to avoid dependence on specific individuals.
Lastly, it is important to consider external factors that may affect the production plant, such as natural phenomena, social issues, or accidents. This includes developing action plans for dealing with supply disruptions, strikes, floods, or other natural phenomena.
In the case of raw materials and components, the cost and time required for approving a new supplier, as well as the value of increasing safety inventory, should be evaluated. For service-based companies, the criticality of the services offered, and the availability of alternatives should be assessed.
How should your company promote a BCP?
A BCP project is a strategically impactful project, and therefore, it requires the commitment of top management and the involvement of all areas of the company, not just the operations department. The phases of risk identification and criteria definition can take between 3 and 6 months, and implementation requires at least 6 months for critical product and process implementation.
Once a BCP project is launched, its methodology should be integrated as a key element in the company’s processes and taken into account in any decision-making, from product launches to the purchase of a production line or any organizational changes.
The risk of failure in a BCP is high due to its immense complexity. The two main dangers when undertaking a BCP are a lack of focus due to excessive detail and a lack of realism regarding the company’s capacity to implement the resulting actions. ManageArt’s methodology is based on a combination of risk analysis rooted in business knowledge and the proposal of realistic mitigation actions focused on implementation, always considering the balance between implementation costs and the risk to be mitigated. The result is the design of a BCP that aligns with the company’s business and capabilities. ManageArt would be delighted to assist you.