Magazine article Risk Management

Efficient Techniques Reduce Leeway: Maintaining Continuity

Magazine article Risk Management

Efficient Techniques Reduce Leeway: Maintaining Continuity

Article excerpt

The growing adoption of efficiency-improving strategies such as supplier consolidation and just-in-time inventory practices is increasing awareness of the need for, and changing the focus of, business continuity planning for middle market companies.

As more mid-size companies take advantage of business trends designed to increase operating efficiency by eliminating expensive redundancies, they are also exploring how these techniques affect their ability to respond to disasters.

"We're seeing a greater awareness of the need for business continuity planning that goes beyond disaster recovery," says Dan Knise, middle market leader at JH Marsh Sz McLennan Inc. in Washington. "Disaster planning used to have a property/casualty orientation that usually focused on fire protection or backing up data. Now companies are taking a broader view of their operations, contracts and suppliers to develop plans that address a range of potential occurrences."

This broader view often extends beyond a company's equipment and facilities to examine what effects could emerge from disruptions to the company's electrical supply, communications equipment or vendors.

"There's a greater reliance on technology and suppliers than was generally the case a few years ago. If a computer network goes down, that could shut down a company. Or if something goes wrong with a function that a company has outsourced, the company will have less control about how it gets fixed," Mr. Knise says.

Similarly, growth in the use of just-in-time inventory techniques in which materials are delivered to manufacturing facilities only as they are needed reduces the leeway companies once had to cope with any disruptions to the delivery of components, according to Jim Pinzari, senior business continuity specialist at J&H Marsh & McLennan Inc. in Boston. "In the past, companies may have had three months' worth of inventory in stock. Now they can't afford to do that," he says.

Other common cost-reduction trends that Mr. Pinzari identifies include the use of a single-source vendor, in which a company purchases materials from the same supplier to improve volume pricing; and the use of a sole-source vendor, in which only one supplier is considered qualified by the company to produce a specific component.

"As companies eliminate redundancy, they also lose the make-up capacity they had in the past," Mr. Pinzari says. "If a major supplier suffers a large loss, it can be two or three months to qualify a replacement. …

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