Each hurricane season, there’s a renewed effort by many businesses to implement disaster plans, but most still do not have a formal, updated plan for business continuity. This article looks at the first steps a distributor should take to ensure that its business can keep running should the unplanned happen.
F&F Industrial Equipment, a one-branch industrial distributor in Middletown, NY, has been proactive about developing a business continuity plan in the case of disaster.
While the distributor itself has never been affected by a natural disaster or other major disruption, it has witnessed customers’ experiences with storms and other unplanned events and the havoc those can wreak if a business is not prepared.
“Knock on wood nothing happens here,” says Frank Fasano Jr., vice president of operations. But, he says, “you really never know.”
As recent events have shown, a disaster can hit anywhere. Consider the extensive flooding in the Midwest last year, hurricanes in the South and on the East Coast, and this year’s wildfires in the West, driven by drought nationwide.
Other disruptions could be caused by a labor dispute at a port or a fire in a distribution center.
Smaller companies are less likely to have disaster planning and business continuity plans in place. Fasano thinks that’s because in a smaller company such as F&F, many managers are juggling multiple titles. “It goes on the backburner,” he says. It’s also easy to think it might not happen to you.
It’s impossible to plan for every eventuality, but there are steps distributors can take to manage the risks.
Business continuity is putting processes in place to ensure the critical functions of an organization can continue during and after a disruption. A disaster plan is much broader, and includes elements such as crisis communications, incident management and employee response and assistance.
Businesses that don’t implement a disaster plan, and with it a business continuity plan, risk reduced profits, as revenues fall and expenses increase to deal with the disruption. Insurance doesn’t cover all costs, as the Federal Emergency Management Agency points out, and cannot replace customers that defect to the competition when they are able to provide time-sensitive products and services when you can’t.
The increasingly connected nature of business demands better planning in the case of even a minor disruption. What happens if the Internet goes down, for example?
The first step to developing a business continuity plan is to conduct a business impact analysis to identify time-sensitive or critical business functions and processes that support them, according to FEMA. “They have to stop and think through all those what-ifs. Which things are going to be important to our ability to continue our operation?” says Steve Epner, founder of Brown Smith Wallace Consulting Group. Epner has worked with companies on business continuity planning.
When developing its plan, F&F Industrial Equipment considered which parts of its business would be most difficult to replace in the case of a disaster. Inventory, for example, while valuable is replaceable. What’s not replaceable is the ability to communicate with customers, Fasano says. So contact information for customers is now stored off-site. “We leverage other companies who specialize in that,” Fasano says.
The distributor has also outsourced its email storage and administration, which will allow access from everywhere no matter what happens to the distributor’s primary facility. If email were stored in-house, as it used to be, there’s a higher risk the company would lose important communications and contact information, he says.
Andy Berry, vice president and general manager of the Global Distribution Business Unit for Infor, says it’s key to have consistent processes across the business. “If one part of the business goes down, you can quickly rely on other people to pick up those processes,” he says. “Have that in a format that is easily accessible and that employees are continually trained on.”
Technology increasingly allows for better visibility across an entire supply chain, which means better response in the case of a disaster or disruption. Because of this, Berry recommends distributors make accurate data a priority in their business continuity planning.
In addition, the advent of web-based and mobile-based applications support this visibility across locations, allowing distributors access, for example, to inventory availability throughout
their supply chains, Berry says. Real-time access to this information helps distributors respond more quickly and efficiently to customer needs in the case of a business disruption.
But the increasingly connected nature of business also means more risk if one part of a business goes offline. “People have an unrealistic understanding of how integrated computers are in our everyday lives,” says Epner.
F&F has backups of its ERP-based data off-site; but more importantly, it has asked and answered: “If a catastrophic failure happens, what is the downtime?”
Epner says knowing the answer to that question is critical. Using a test system, he suggests distributors attempt to reload their backup files. Oftentimes, he’ll find that a distributor has never tried this. “The backup hasn’t ever completed the process, so they don’t actually have a backup,” he says. “Make sure you can recover everything you need.”
For distributors who are depending on outside companies to recover data or other processes, find a backup for that company. “Can someone else come in and help you if you need it?” Epner says.
Helping the Customer
In addition to preparing their own businesses for disruptions, distributors have an opportunity to become invaluable to customers by helping them prepare for disruptions.
F&F has worked closely with customers to ensure that it would have what they need if anything were to hit their businesses.
F&F also implemented emergency phone lines that customers can reach day or night. Fasano says technology has improved to the point where it’s easy to set up emergency lines that can be rerouted after regular business hours.
“It helps get the ball rolling,” he says. F&F already works with its suppliers to ensure the ability to drop-ship in case something happened to its inventory or it did not have the inventory it needed in-stock.
Tim Underhill, president of Underhill & Associates, works frequently with end-users and the distributors and manufacturers that serve them to develop plans to ensure quick response in the case of an emergency. As customers continue to reduce their supplier base, risk management is front and center. They are asking: “What could go wrong?”
Underhill recommends distributors conduct business reviews with customers up to four times a year. In these discussions, avoid tactical topics, such as sales targets or missed deliveries.
Instead, focus on the strategic side of the business. Find out what’s important to the customer. A utility, for example, would place reliability at the top of the list. An oil company may prioritize safety.
“What can the supplier do to make sure they have fewer disruptions?” Underhill says. “… We look at what is important to the customer. And then how do we work together to make this a stronger relationship and eliminate the issues the customer is facing.”
That puts a distributor in a stronger position because they’ve helped build a foundation for a customer that minimizes risks to their businesses.
It also may lead to higher margins and sales because they are doing more for the customer.
No Single Point of Failure
Other pieces that are critical to building a business continuity plan may be more simple: setting up a phone tree to communicate with employees or to make sure each employee is OK, for example. Or ensuring that customers and others can still communicate with your business, even if the phone system goes out by setting up automatic forwarding to everyone’s cell phones.
Backing up your Internet connection is another way to protect what’s become a critical component of being able to conduct business for many. “One thing we suggest to most people – if you’re dependent on the Internet, have two ways to connect,” Epner says. Have connections from the telephone company and the cable company, with wires coming in from different sides of the building.
A good resource is the FEMA Emergency Management Guide for Business and Industry.
It outlines a number of steps businesses should take to protect themselves in the case of a disaster, including labeling and making copies of vital records, increasing the security of computer facilities, arranging for back-up power, training employees and asking your insurance company about how well your company is covered in the case of emergency.
Access more details on building a business continuity plan at www.ready.gov/business/implementation/continuity.
All the advice on business continuity boils down to having “no single point of failure,” Epner says. “It’s not always possible,” he says, “but for the most part you can have backup for everything.”