For many manufacturing companies, 2017 has become a horror story. The U.S. alone experienced 15 natural disasters where each, as reported by the National Centers for Environmental Information (NCEI), exceeded $1 billion in overall costs/damages. Moreover, according to the Federal Emergency Management Agency (FEMA), approximately 40 percent of businesses never reopen after a natural disaster, 25 percent fail within a year and for those that do reopen, only about 30 percent last longer than two years. Therefore, as disasters are expected to become more frequent, planning for survival and recovery must be at the top of the list.
Because we know that disasters can be devastating and have long lasting effects, manufacturers must take an offensive approach to mitigate risks and ensure recovery. Thus, having a proficient Business Continuity Plan (BCP) is essential.
Business Continuity Planning
Business continuity planning helps manufacturers protect their operations during and after a disaster, but to be effective, planning should begin before an emergency ever occurs. An adequate BCP can minimize costly disruptions that may take the form of production delays, loss of IT/telecommunications, and even facility shutdowns. Hence, there are two main categories that manufacturers should evaluate when planning for business continuity: internal resources and external resources.
Internal resources include:
- Communications systems,
- Data backup systems,
- Production systems,
- Payroll capability,
- Emergency power supplies, and
- Utility systems.
External resources include:
- Public emergency services,
- Civic organizations,
- Emergency/medical facilities,
- Insurance carriers, and
- Utility companies.
Susceptibility and Functionality
One of the first things that manufacturers should think about when planning for business continuity is their susceptibility of being affected by an emergency and the potential costs. This will help to determine what resources are crucial for continuing operations and should be prioritized.
Consider evaluating the following factors:
- The likelihood of an emergency (geography, weather conditions, past emergencies, etc.);
- Those areas that are absolutely necessary to keep the company functioning (equipment, personnel, etc.);
- Amenities that are critical to business functionality (gas, power, water, sewer, telecommunications, etc.);
- Potential costs associated with the physical impact of an emergency (repair/reconstruction, etc.);
- Potential costs associated with the business impact of an emergency (loss of market share, production loss, breach of contractual agreements, legal costs, etc.); and
- Management controls that are essential to survival and recovery (payroll continuity, accelerated financial decision making, etc.).
Another important factor that manufacturing companies should consider is alternative contractors. Because of the interdependent nature of the manufacturing sector, alternative contractors should be considered and business relationships should be developed with them, so that they can be used if the primary contractor cannot service business needs due to emergency. For this reason, it is equally important that suppliers also have proficient BCPs in place. A key supplier that is ill-equipped when affected by an emergency can be devastating. Thus, it is imperative to coordinate with suppliers, or with other parties with whom business is regularly conducted, to analyze disaster recovery strategies. For instance, consider having a priority clause in contractual agreements to determine the organizations that will be served first in the event of an emergency.
Potential Temporary Facilities
Likewise, manufacturing companies should consider having potential temporary facilities to accommodate operations in the event that their facilities become inaccessible during the time of the disaster and afterwards. If feasible, backup manufacturing sites can be very important and vital to the continuum of operations, and will allow manufacturers to pre-plan any necessary migration steps with suppliers. Accordingly, any instructions or procedures relating to the production process should be up to date to avoid wasted time and to facilitate the recreation of the process at the alternative location.
The following reasons are just a few benefits to having a potential temporary facility:
- Data recovery – with proper data backups, data can be recovered, and processing can continue at the alternative location;
- Inventory management – avoid having all inventory at one location so that there is enough inventory at other key facilities to continue production at the alternative location; and
- Backup equipment/tools – if feasible, extra equipment and tools can be stored offsite to save lead time on production at the alternative location, rather than replacing/rebuilding tools destroyed by the disaster.
Assessing the Ability to Work Remotely
Furthermore, manufacturing companies should consider the extent to which personnel can work remotely. Over the past several years, the ability to work remotely has become a popular need. In the wake of an emergency, the capacity for personnel to work offsite can be vital to the survival and recovery of the organization. Because safety is a top concern, you should assess the systems that need to be in place in case conditions reach a level to where it’s not safe to travel, there is an outage, and/or facility shutdown.
To assess the ability to work remotely and ensure high-level functionality of personnel, be sure to consider the following:
- Working with your IT department to create a viable, safe remote access system;
- Creating remote work guidelines and training personnel on set up procedures;
- Making guidelines accessible to all personnel via handbook, email etc.;
- Increasing communication during the disaster period and afterwards;
- Routinely inspecting/troubleshooting the remote-access system to ensure it has the infrastructure to handle business needs and the influx of personnel use during an emergency; and
- Offering real-time information and real-time visibility to monitor regular operating conditions and maintain machinery.
Emergency Preparedness Planning
Lastly, while it is important to have a proficient BCP, manufacturers should also have an Emergency Action Plan (EAP). The EAP focuses more on workplace safety and properly responding to an emergency rather than business continuity. However, the two plans should work in concert to warrant a safe workplace and assist manufacturers with regaining functionality after a disaster.
An effective EAP should include:
- Sufficient evacuation procedures;
- Proper communication systems (emergency notification and reporting methods); and
- Simulated emergency drills.
All things considered, manufacturers should take a preemptive approach to ensure the continued existence of their organization by having the proper emergency and continuity plans in place. An inadequate BCP, or the lack thereof, can pose a severe threat to the recovery and restoration of an organization. Thus, consider reexamining the current continuity plan to evaluate its sufficiency and be sure to periodically examine emergency plans to assess whether any changes and/or updates are necessary. By and large, it is critical to understand the importance of business continuity planning and its necessity so that manufacturing companies are prepped to sustain and continue operations during and in the aftermath of an emergency.
Miya Moore is an attorney in the Birmingham office of Burr & Forman, where she practices in the firm’s Labor & Employment practice.
Credit: Miya Moore
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