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Most Companies Fail To Plan For Supply-Chain Disruption: Study

Only 33% of companies surveyed acknowledged they would be prepared to keep supply chains moving if the global flu epidemic hit, says a new AMR study.

Laurie Sullivan

May 2, 2006

4 Min Read

Pandemic influenza could shut down the flow of goods and services from U.S. businesses to customers. Yet, few companies are prepared for such a major supply chain disruption, according to a study released Tuesday.

If the global flu epidemic hits, only 33 percent of the companies surveyed acknowledge they are prepared to keep supply chains moving, says the AMR Research Inc. study. The responses are from about 200 companies that generate more than $1 billion in annual revenues.

Forty three percent of the companies surveyed say they have a risk-management plan, which requires companies to identify alternate sources of supply. "Let's say China seals off its ports for two weeks because of a huge outbreak," said Mark Hillman, senior analyst at AMR Research. "These companies need to have alternate sources of supply, or build some form of redundancy into inventory levels they can rely on in case supplies dry up for two weeks."

Before hurricane Katrina hit the gulf coast, Dell Inc. identified New Orleans as a high-risk port and began to move some in-bound shipments to other local ports. When Delphi declared bankruptcy last year, the 80 percent of smaller companies that relied on the automotive parts company for components "freaked out" because they didn't have a contingency plan, Hillman said.

Hillman pointed out that a supply chain disruption has occurred every year for the past five: severe acute respiratory syndrome (SARS), Sept. 11 terrorist attacks, hurricane Katrina, Asian tsunami, and Long Beach and Los Angeles longshoreman strike.

SARS fell on China in November 2002. People arriving in the country through international flights were checked by governmental officials wearing masks as they arrived at the airport. But by the July SARs had spread into 28 countries, infected 8,437 people and killed 813, including 350 in China and 300 in Hong Kong.

Avian flu hasn’t reached pandemic levels for humans because it's difficult to transmit from human to human, but researchers fear it could become a contagious illness by mutating or combining with another strand. The Bush administration is said to be close to presenting its response plan to a possible flu pandemic.

Hillman said executives need to understand the company's operational structure and relationships between supply for materials and demand required to keep businesses operational will prove critical. Companies should expect up to 40 percent of their employees will need to work at home.

In the event of a pandemic, customers and employees won’t commute into offices. They’ll work and buy from home. As more people remain home, phones and the Internet will become critical business tools. It will require increased capacity to handle complaints, help desks and product information, and dispatch service personnel.

Retail stores have not done the cross-training or preparations required to move the majority of their business from a physical store to online, Hillman said. Only 29 percent of the companies surveyed said they're prepared to support customers and suppliers with self-service functions if foot traffic into brick-and-mortar stores declines and sales volume shifts to the Web.

"I've had manufacturers tell me they don't have a plan because there's a lot of other bad stuff that could happen before the avian flu gets to my Michigan factory," Hillman said. "Retail and transport companies that rely heavily on the physical movement of goods are on the first line of fire."

Companies must cross train in-store personnel to handle online functions, Hillman said. "Most companies can handle a spike in demand," he said. "But do they understand the impact on logistics and cross training of staff?"

Once companies map out business processes and understand the supply network they can purchase decision support software to helps simulate events, such as where to send supplies if a distribution center in Los Angeles must shut down, Hillman said. helping to plan better are either network design and planning or inventory optimization software tools from i2, Jonova, Llamasoft, LogicTools, Optiant, Oracle, SmartOps and ToolsGroup. Helpful, too, are supply chain visibility tools from companies, such as Teradata, a division of NCR Corp.

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