OM in the News: Planning for Disasters

One of the less discussed responsibilities of the operations management team is planning for a natural disaster (a topic we note in Chapter 11 and Supplement 11). Yet as we saw with the tsunami and earthquakes in Japan, and with flooding in Malaysia, disasters can destroy a business. Few businesses, especially smaller ones, have continuity plans. The New York Times (Oct.8, 2015) estimates that 40-60% of small businesses never recover after being hit by natural disasters. The best protection is developing a continuity plan that plots out responses to different disaster situations. It targets the biggest business risks and critical functions that keep revenue flowing. Continuity plans that are never used can even help improve business profitability, says the book Prepare for the Worst, Plan for the Best.

The process can be broken into 5 steps. They include keeping track of resources, inventory, personnel and physical sites. The plan should be written and stored in the cloud, as in a Google document, so it can be retrieved anywhere.

Step 1 is analyzing a business’s critical functions. Many businesses just focus on the technology part, without considering customers, products, suppliers and employees that need to be protected.

Step 2 is focusing on risks that could topple the business. These risks could be damaged inventory, lost data or irate customers. How would crucial assets be affected? What would happen if the business was closed for 1 day, 1 week?

Step 3 creates strategies to protect crucial parts of the business. For example, manufacturers might want to think of alternate suppliers. Company inventory can be put in more than one location. Customers can be contacted via text messages, Facebook or email. Employees can stay connected by using a list compiled in advance. Data can be protected by storing it in the cloud.

Step 4 is testing the plan. This is the most-forgotten step. Finally, in Step 5, plans should be updated every year, including the contact list.

Classroom discussion questions:

1. Discuss the issues a restaurant would face in disaster planning.
2. Do companies you are familiar with have such a plan?