Transportation and Business Resilience

By Irene Rozansky

With rare exception, every enterprise is the center of a complex network of suppliers and suppliers’ suppliers that the company connects to its customers and its customers’ customers.  The confluence of three phenomena has made supply chain a major concern to business resilience: our enormously complex world, an ever-increasing global economy, and the unwavering pursuit of efficiency within supply chains.  This confluence has inadvertently and exponentially increased the vulnerability of enterprises to a variety of both internal and external show-stopping disruptions.  While the likelihood for any one event that would have an impact on any one facility or supplier is small, the collective chance that some part of the supply chain will face some type of disruption is high.  The cascading impacts from adverse events can now extend further than ever before. The physical logistics operations that connect the nodes in the supply chains are an integral part of the network – be it by road, rail, air, ship, pipeline or intermodal.  Thus, transport is a critical aspect of the supply chain.  To understand supply chain risk, a business continuity professional must also understand vulnerabilities to and about transportation.

The supply chain has three major sections: inbound (internal or external supply side), conversion (value-added activities performed by the company at a particular site), and outbound (internal or external customer-facing).  Disruptions can occur at any section at any time.  Supply chain managers are mostly concerned with managing operationsvulnerabilities (e.g., supplier business disruptions, vandalism, workplace violence, etc.) and hazardvulnerabilities (e.g., accidents and natural disruptions as well as malicious disruptions such as terrorism or product tampering). 

Business continuity professionals understand that supply chains are critical to the success of business, and therefore work with supply chain management, enterprise risk management and others to address this during risk assessment, business impact analysis and planning for prevention, mitigation, and recovery.  The classic mitigation strategies for supply chain include: strategic inventory holding, alternative outsource capacity, dual supplier sourcing, distribution and logistics alternatives, and other backup arrangements.  This is easier said than done!  What researchers have found is that most business continuity plans are woefully inadequate dealing with the inbound and outbound sections, even if the companies understand many of the vulnerabilities they face.  Perhaps this is due to the notion that these are seen as external risks and either are someone else’s problem or they are out of the control boundaries of the organization and therefore can’t be proactively resolved.  Research also reveals that most companies do not have a complete vulnerability picture that includes their suppliers’ vulnerabilities, the interdependencies between suppliers’ suppliers, and the geographic/environmental picture for their suppliers.¹

General Motors is the quintessential, some might say extreme, example of supply chain in action.  It is the world’s largest automaker with 360,000 employees building 8.5 million vehicles each year.  They have operations in 53 countries and sell their products through a network of 7,500 dealers in 200 countries.  There are thousands of precision-engineered parts and electronic components in each of its vehicles.  GM procures parts from a myriad of suppliers through a vast, multi-tiered network.  Materials have traveled tens of thousands of miles before the customer drives the vehicle off the lot.  For example, one small part – a fine copper wire in the small electric power window motor inside the driver’s door – starts as copper ore (copper mines in Chile), then is smelted into pure copper, alloyed to create the right physical properties, cast into an ingot, formed into a bar, drawn into wire (wire made in China), coated in insulating varnish, wound inside the motor (motor made in Japan), combined into a door assembly (doors made in Canada), and mounted into the vehicle (final assembly plant in the United States).  After all that, the vehicle is shipped to one of the GM worldwide network of dealers.  A disruption can strike any link in the chain, including the web of transportation services that move raw materials and parts from source to plants to additional plants to distribution centers and finally to retailers.²

Astonishingly, $1.4 trillion worth of goods, in 9 million cargo containers enter the United States each year.  Digging deeper, goods are moved via 8 million truckloads of freight, across 4 million miles of highway; 1.5 million railcars over 170,000 miles of track; 2,400 flights passing through 400 airports; and 325 seaports transferring 25,000 containers EACH DAY in the USA!  Thus, it is no exaggeration that the “economic impact of a significant prolonged disruption to the global transportation network and the supply chains that it sustains, would be measured in billions, if not trillions of dollars.”³

Transportation networks must be more resilient.  70% of transportation company executives rate shipping containers vulnerable to security risks.  This is astounding since 90% of the world’s cargo now moves by container.  What are they vulnerable to?  Everything from terrorism to labor disputes to theft to tampering to tsunamis or hurricanes to wildfires to power outages to political upheavals to simple hazmat accidents to governments shutting down transportation links to halt means of further attack (natural or man-made), and everything in between.⁴   

The mission critical assets that are part of the transportation network that need to be protected are:

• Ships, trucks, railcars, and planes;
• The infrastructure they travel on or through;
• The telecommunications infrastructure they depend upon;
• The people who make it all happen such as transportation operators, brokers, intermediaries, forwarders, and operations professionals; and
• The goods they are moving.

Some strategies that can be included in business resiliency plans as they relate to supply chain transport include: 

• An evaluation of the enterprise’s suppliers, distribution channels, new routing selection criteria, and internal policies and procedures that support preparedness for disruptive events;
• How the enterprise will deter bad things from happening, how it will detect when they are happening, steps it will take to delay or mitigate the impact of the event, and response steps it will take to minimize further damage;
• How the enterprise plans to coordinate the response with the cooperation of the supply chain partners that are affected.  As with other parts of the business resiliency plan, it is paramount to create a collaborative relationship with others outside the organization, in this case, in the supply chain partners;
• Specific protocols designed to provide for flexible sourcing to get through the crisis, to isolate and deal with a shipment should detectors indicate possible tampering, to mitigate single points of failure in the supply chain and to determine practicable work-around solutions for the myriad of transport-related disruptive events;
• Lastly, insist that as a condition of doing business with the enterprise, the supplier must provide proof of their own business resiliency plan.  An added benefit here is the opportunity to collaborate, share best practices and include the supply chain partners in future exercises.

¹ LCP Consulting in conjunction with the Centre for Logistics and Supply Chain Management, Cranfield School of Management, Understanding Supply Chain Risk: A Self-Assessment Workbook, 2003.

² The Resilient Enterprise, Yossi Sheffi, MIT Press, 2007, p. 27.

³ Securing Global Transportation Networks, Luke Ritter, J. Michael Barrett, and Rosalyn Wilson, 2007,     p. xxi.

⁴ Op. cit., xxii.

About the Author
Irene Rozansky is the founder and CEO of R&A Crisis Management Services, a firm dedicated to helping companies build smarter, stronger organizations that can rebound efficiently from any emergency, ensuring the longevity of their business and the safety of their people. Irene is an international speaker, consultant and author with an extensive background in business resiliency, project management and organizational change and communications. For the past 20 years, Irene has assisted organizations prepare for, mitigate, and successfully avoid or recover from all types of critical events. Prior to R&A, Irene developed, implemented and managed business continuity consulting services for Digital Equipment Corp., Compaq Corp. and Comdisco, Inc. She may be reached at (847) 827-4267 or irene@raconsulting.net.