Business Continuity and Recovery Strategies for Manufacturers
There are a number of differences in business operations between a typical service-based business and a manufacturing business. Many business continuity strategies that work well for a service based business will be ineffective for a manufacturing business.
This article by Douglas M. Henderson, FSA, CBCP, presents an overview of the business continuity and recovery strategies that have application to a typical manufacturing business.
It is important for manufacturers to assess their business operations and then develop specific strategies to maintain or rapidly restore manufacturing operations.
Special Manufacturing Requirements
Most manufacturers have specialized manufacturing equipment and/or specialized manufacturing building infrastructure support systems. Insurance alone can protect against direct financial losses resulting from asset damage but cannot guarantee the rapid replacement of specialized equipment and infrastructure.
A manufacturing operation that relies on ‘one and only one’ item of equipment or a single building infrastructure support system will represent a ‘single-point-of-failure.’ Many manufacturers have equipment or systems that are critical with no manual overrides or other alternatives available if the equipment or system fails. If the equipment or system is very expensive, having backup equipment or a backup system can be a financially unfeasible alternative.
Basically, all manufacturing operations are a type of ‘supply-demand chain’ or ‘process flow’ (‘raw materials’ to ‘manufacturing’ to ‘fabrication’ to ‘assembly’ to ‘finished product’). The production of the finished product is dependent on all operational components being properly synchronized. Although supply-demand chains are applicable to both a service-based business (Service industries are also a type of less visible supply-demand chain with many interdependencies. Information /data of some type is collected, verified, analyzed – with some value added – and sold to a client/customer. The entire process is sometimes completely void of paper or other physical object) and a manufacturing business, manufacturers have additional problems in maintaining the supply-demand chain. The important difference with service based businesses is that manufacturers are reliant on physical assets. After a disaster, damaged assets (equipment, infrastructure and/or inventory) will present special problems for the manufacturer.
Classifying the Solution Strategies
This article classifies some of the more commonly used business continuity and recovery strategies as they apply to manufacturers into the following four categories:
- Strategies that work poorly
- Strategies that introduce manufacturing inefficiencies
- Strategies that sometimes work well
- Strategies that often work well
Strategies That Work Poorly
Common business continuity and recovery strategies that often work well for service based businesses but usually work poorly for most manufacturers are as follows:
- Alternate Sites – These are remote locations where work can be conducted. Alternate sites are an important component of any good Information Technology Disaster Recovery Plan. Alternate sites are also often used for office operations that require only general office space and technology support (provided by the IT alternate site). Alternate site application for manufacturing operations is usually limited by the high-cost associated with having redundant manufacturing equipment and/or redundant manufacturing building infrastructure.
- Pre-Positioning – This involves the relocation of employees prior to the crisis and is a powerful strategy for service businesses that face a serious hazard that provides an extended warning period (hurricanes, floods, etc.). Application for manufacturers is limited by the need for redundant manufacturing equipment and manufacturing building infrastructure at the point of destination. If manufacturing equipment is mobile and if there are no special manufacturing building infrastructure needs, it is theoretically possible to pre-position employees and equipment and begin manufacturing operations at another location. Considering all the ‘ifs’ and cost involved, pre-positioning has very limited application for most manufacturing operations.
- Work from Homes and Hotels – With the Internet, cloud computing and other technological advancements, this business continuity strategy is becoming increasingly important. This strategy has application within a service based business where substantial business operations can be provided by individuals with laptop computers, power supply and communication access. There may be limited application within manufacturing industries (sales, customer service and certain other support departments) but it will not likely be possible to support general manufacturing operations from homes and hotels.
Strategies That Introduce Manufacturing Inefficiencies
Business continuity and recovery strategies that often work well for manufacturers but introduce manufacturing inefficiencies during time of normal business operations are as follows:
• Buffer Stock – Securing additional inventories will provide a cushion if supplies of raw materials are interrupted. Buffer stock is in direct conflict with lean manufacturing concepts – it incorporates idle assets. Most manufacturers will be reluctant to use this strategy.
- Distributive Manufacturing/Processing – Businesses with multiple locations can provide some internal redundancy by performing identical tasks at multiple locations. Distributing critical operations to multiple locations will ensure critical operations at some minimum level in the event of the destruction or disablement of one location. Distributive manufacturing does conflict, at least to some extent, with lean manufacturing concepts. Most manufacturers prefer to concentrate manufacturing efforts at single locations to minimize inventories. Manufacturers are often reluctant to use this strategy.
- Distributive Warehousing – This is most closely associated with the warehousing of finished products or raw materials at some location other than where it was manufactured. Distributive warehousing is in direct conflict with lean manufacturing concepts – it incorporates idle assets. Most manufacturers will be reluctant to use this strategy.
- Multiple/Alternate Suppliers – An ongoing business practice of utilizing several different suppliers will help to ensure a continuous supply of raw materials by eliminating a reliance on one and only one supplier – essentially removing a single-point-of-failure. Using multiple/alternate suppliers is not in direct conflict with lean manufacturing concepts; however, most manufacturers prefer to use single suppliers for volume discounts and quality control reasons. Many manufacturers will be reluctant to use this strategy.
Strategies That Sometimes Work Well
Business continuity and recovery strategies that sometimes work well for manufacturers are as follows:
- Manual Overrides – There are often less-efficient manual procedures that can be utilized if manufacturing equipment is damaged or destroyed.
- Mutual Aid Agreements or ‘Reciprocal Agreements’ – Having an agreement for assistance with another business can be useful after a major crisis. This is an economical business continuity strategy that unfortunately often does not work after an actual crisis event. In an actual crisis these arrangements frequently fail for one or more of the following reasons:
- Manufacturing Equipment is Incompatible – Even if the equipment is identical at the initial point of agreement, equipment changes by either organization will ruin compatibility.
- Insufficient Capacity – Most manufacturers have resources needed to meet the needs of their normal business operations and will not have sufficient excess capacity to support another organization of a similar size.
- Both Manufacturers Disabled – Mutual aid agreements are often arranged between businesses in the same local area and these businesses are all subject to the same community-wide disasters.
- Outsourcing – Having another business or businesses perform certain work functions is referred to as ‘outsourcing.’ This business continuity strategy is usually an ‘additional’ or ‘supplemental’ rather than a ‘primary’ strategy.
- Quick Re-Supply or ‘Just-In-Time (JIT)’ – This is the rapid replenishment of inventory, supplies and/or equipment. This is a cost-effective business continuity and recovery strategy for manufacturing industries. However, this approach will probably not be effective for replacing highly specialized and expensive manufacturing equipment. There is also a reliance on the transportation infrastructure which may be disabled after a community-wide disaster.
Strategies That Often Work Well
Business continuity and recovery strategies that often work well for manufacturers are as follows:
- Backup Equipment – Additional equipment is often secured for specialized manufacturing equipment if the equipment is critical, not overly expensive and/or represents a single-point-of-failure.
- Building Fortification – The fortification of the facility or critical areas of the facility is an important planning component especially for manufacturers that require specialized facilities or have expensive critical equipment to protect. Fortification measures can be classified into two distinct categories: permanent fortifications that are constantly in place and temporary fortifications that are deployed when necessary.
- Portable Equipment – Manufacturing operations can often use portable equipment to supply critical building infrastructure (compressed air, chilled water, etc.) normally supplied by permanent building systems. Portable equipment can generally be secured quickly – typically much faster than severely damaged building infrastructure systems can be repaired or replaced.
- Subcontractors –Subcontractors should be readily available for facility clean-up and repair work, manufacturing equipment replacement or repair.
Summary
Unfortunately there is no single, 100% foolproof solution that is cost-effective for most manufacturers. Rather, manufacturers need to review the various business continuity and recovery strategies and select the most effective strategies that are cost-justified for their particular operations.
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Business Continuity can be a challenge in any environment – and the complexities of manufacturing and distribution operations can be even more challenging.
The BUSINESS CONTINUITY PROGRAM FOR MANUFACTURING AND DISTRIBUTION ON CD-ROM has some similarities to business continuity programs for other business environments – but many differences specific to manufacturing and distribution.
- Have Critical Revenue-Generating Operations been Thoroughly Analyzed?
- Is Your Plan Designed Specifically for a Manufacturing or Distribution Business?
- Is Your Plan Limited to Information Technology Planning?
- Do All Departments have Adequate Plans in Place?
If the answer to any of these questions is “no” or “unsure,” then this planning template can help for only $349.00!
Tags: distribution, manufacturing
