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Planning for Supply Chain Problems is Essential

If nothing else, large disasters such as the BP oil crisis and Hurricane Katrina have put businesses small and large on notice that unexpected events can pose serious problems, even when those businesses are far from the epicenter of such trouble. Proper preparation can yield great benefits for a company, and possibly ensure its survival.

In the post-9/11 world, businesses have paid greater attention to issues of supply chain management and security. Excelling in this arena requires two areas of focus.

  • Making sure the business has the goods and services it needs to make its products in the event of an unforeseen disruption
  • Ensuring that the quality and integrity of the supplies aren’t compromised in any way

Throwing money at the issue may help, but it isn’t always the solution. Instead, having a clear, effective strategy when a breakdown occurs is most effective way of dealing with unforeseen supply chain problems, according to research conducted by  researchers at Iowa State College of Business.

The stakes might be particularly high for smaller businesses, the researchers found.

“Companies are actively thinking about the security” of their supply chains, said Bobby Martens, one of the lead authors of the study along with fellow Iowa State faculty Michael Crum and Richard Poist. “I don’t question that they’re thinking about it for a second.”

The study queried managers from 69 companies. More than a quarter of the companies had 1,000 or fewer employees. Martens admitted that measuring security is a tricky task. “We have no actual hard way to measure effectiveness of security,” said Martens. So Martens and his cohorts asked managers to explain how well they thought they’d prepared their companies for a security breach.

The biggest challenge the companies face is managing external integration of their plans. Martens said companies are far more successful managing the internal aspects of their security and supply chain plan. External issues pose a larger problem, especially for small businesses .

“Smaller firms often have a small network of suppliers ,” said Martens. “That might make it more efficient and allow for great relationships, but it may mean that there’s more at risk.”

Naturally, certain industries face greater supply chain risks. Martens pointed to food and pharmaceutical companies as two examples where it’s critical to build and understand a strategy for protecting against supply chain interruptions and problems.

The study also revealed that there are some intangible benefits to having a security plan in place. Effective supply chain management strategies often improve other aspects of the business, such as customer service and operations.

But Martens emphasized that businesses must assemble a plan to protect their supply chains. And he said that start-ups and entrepreneurs might gain the most from forward-looking preparation.  ”For small firms, if they have a large disruption, they could lose everything.”