Purchasing Planning For Disaster - Are You Prepared?

Author(s):

Wade C. Ferguson, DBA, C.P.M.
Wade C. Ferguson, DBA, C.P.M., Contract Administrator, Santee Cooper, Moncks Corner, SC 29461-2901, 803/761-8000.
Mark F. Hartley, DBA
Mark F. Hartley, DBA, Associate Professor, College of Charleston, Charleston, SC 29424, 803/953-5955

79th Annual International Conference Proceedings - 1994 - Atlanta, GA

If disaster strikes your organization, could your purchasing department respond? What level of internal customer service could you provide if the tools of your trade - your telephone, your fax, your copier, your COMPUTER - were no longer available? Frequently, an organization faced with disaster and subsequent recovery will require increased service levels from its purchasing department, at a time when the department's ability to respond has been seriously impaired. Advance disaster planning will ensure that your purchasing department is still capable of meeting the procurement needs of your organization, even if serious disaster strikes, thereby reducing the risk associated with a disaster. Proper preparation for disaster reduces the level of risk to the purchaser, the purchasing department, and thus the entire organization.

Experience shows that the majority of purchasing operations do not have a disaster plan. Of those that do, the plan is often outdated or unknown to most or all of the incumbent employees. This paper provides guidelines for both the development of a purchasing disaster plan, as well as guidelines for the re-evaluation of existing plans. The disaster planning process may be divided into three primary phases, i.e. prediction, preparation, and practice.

Before beginning the purchasing disaster planning review, a team of purchasing professionals should be formed to carry out the process. In a small purchasing department, the entire staff may be involved. In larger organizations, appropriate purchasing professionals should be selected to ensure input from all relevant operations within the department.

PREDICTION
The first step in the disaster planning process involves the prediction of potential disasters that might befall the firm. obviously, some types of natural disasters have a greater probability of occurrence in different geographic areas - hurricanes on the southeast and gulf coasts, tornadoes and floods in the Midwest, earthquakes on the west coast. But, most disasters can be divided into two categories. Anticipated disasters and unanticipated disasters. Anticipated disasters are occurrences for which there is some notice prior to the arrival of the disaster, such as a major hurricane. Unanticipated disasters are those that strike without notice, such as tornadoes, earthquakes, and fire. Although, the risk factor is higher when faced with unanticipated disasters, through proper planning, the risk for both categories can be reduced.

Based on the prediction of the various possibilities, the planning efforts should focus on the entire impact range, giving consideration to disaster effects ranging from minimal to catastrophic. The planning team might discount the most catastrophic impact extremes, believing there is a relatively low probability of such an occurrence. However, such thinking should be avoided. While it is impossible to plan for the full range of possibilities, planners should be prepared for the worst case scenario, and "expect the unexpected."

PREPARATION
The preparation of the plan involves a review of existing corporate disaster plans and the development of purchasing plans to compliment the corporate plan. The purchasing plan should give consideration to special needs such as communication, travel, administration, insurance, and both internal and external interfaces.

The disaster planning team should obtain a copy of existing corporate disaster plans and determine purchasing's role in the corporate plan to ensure that existing action requirements in the corporate plan are accommodated in the purchasing plan. It is not unusual to find that actual functional requirements in existing corporate plans lack specificity, and may not focus on detailed functional responses. In this case, the purchasing disaster planning team has the opportunity to "fill in the blanks" with specific purchasing disaster activities. If there is no corporate plan, the purchasing planners may proceed with the development of the department plan.

Next, the team should brainstorm a comprehensive "what if" list to establish the negative impact on the purchasing function of various types and degrees of disasters identified in the "Prediction" phase. The team should continue to be guided by the dual themes of "expect the unexpected" and "prepare for the worst."

Upon completion of the brainstorming process, the team should have a relatively long list of possible negative impacts (a "worst that could happen to us" list). This list can then be used as the basis to make plans for dealing with each negative possibility. A plan to obtain a cellular phone to use if normal telephone service is lost, or maintaining a supply of manual purchase order forms to use if the computer is lost, are both examples of plans for dealing with negative disaster effects.

As the planners begin to prepare for the mitigation of each negative impact, the team should ensure that consideration has been given to special needs in the area of communications (internal and external), travel, administration of the procurement process, compliance with insurance carrier requirements, internal functional interfaces, and external interfaces with suppliers and/or customers.

Communications
Since the primary communication tools of the purchasing operation involve the use of telephone lines in one way or another, the disaster plan must include alternatives to conventional telephone communication, either from the existing site or from alternate sites.

Travel
If the home base of the purchasing department is destroyed or rendered inoperable, transportation of equipment and/or personnel to an alternate operating site may be required. If personnel must be transported to alternate locations, it will be necessary to provide expense money, food, and lodging.

Administration
Since temporary loss of electricity is a frequent effect of natural disasters, the planning team must consider the impact of such a loss on the department's ability to issue and track purchase orders/contracts. Without power, manual methods, or the use of portable, battery-powered equipment, may be required. Consideration must also be given to such administrative issues as the need for different or increased authority levels under emergency conditions. It is important to remember that good record keeping will continue to be an imperative. Although, the tendency in an emergency is to "let the paperwork go," good records may become extremely important, for such things as internal recovery and insurance claims.

Insurance
The planning team should determine the corporate insurance carriers' claim requirements so that steps are taken to ensure maximum financial recovery. With this advance knowledge, purchasing can plan to provide the necessary action/information required to ensure that claims can be handled expeditiously. In addition, the team should familiarize itself on FEMA claim requirements as applicable. FEMA claims are typically dependent upon such things as assurance of competitive pricing and return to "normal" procurement operations at the earliest possible time.

Interfaces
Team members should give special consideration to internal and external interfaces, and in particular to changes to normal interfacing caused by the disaster. Internal interfaces may include materials control/management, inventory, warehouses, stockrooms, and accounting. External interfaces include primary suppliers/partners and in some cases, customers. The review of disaster interfaces with suppliers/partners should include obtaining 24 hour emergency contact/phone lists. The team should also share the final plan with, and advise suppliers/partners of purchasing's expectations in the event of an emergency. Purchasing's key suppliers/partners can be valuable assets during the recovery from a major disaster.

PRACTICE
Once the plan is completed, a disaster simulation drill should be carried out. While no drill will ever equal a real disaster situation, the exercise will help point out flaws in the administration of the plan. The practice will also ensure that everyone is familiar with his/her role in an actual disaster situation. While a corporate-wide disaster simulation is ideal, purchasing can simulate its own disaster drill without a corporate-wide exercise.

In addition, it is necessary to continue to hold periodic simulations to ensure the plan remains applicable within changing corporate conditions. This is also necessary to ensure that existing personnel remember their roles, and new staff members are knowledgeable of their responsibilities as stated in the disaster plan.

SUMMARY
The goal of a purchasing disaster plan should be to ensure that the purchasing function can continue to provide appropriate levels of customer service, even in the face of a disaster situation. Not only should purchasers plan to continue their normal level of support to their organizational customers, but they should plan to provide greater than normal support levels following a disaster, and typically with a purchasing operation that has itself been impaired by the disaster.

Purchasing disaster planning teams must recognize the possibility of many types of disasters and plan for varying levels of negative impact on the organization - from minimal impact to catastrophic. The team should always include in its plan the "worst-case" scenario and attempt to "expect the unexpected." By so doing, the planners reduce the uncertainty associated with disaster situations, thereby reducing the level of risk for the individual purchaser, the purchasing department, and ultimately the entire organization.

Appendix - Purchasing Planning for Disaster Sample Questions to Guide the Disaster Planning Process

The following questions are provided to guide the purchasing disaster planning process and to stimulate other questions that the planning team will seek answers to during the process. The list is not intended to be exhaustive.

PREDICTION

1. What types of disasters could impact our purchasing operations?
2. What is the extent of the impact of each type of disaster?

PREPARATION

• Do we have a corporate disaster plan?
• What is purchasing's role in the corporate plan?
• Are there any special action requirements for purchasing under the corporate plan?
• Does everyone in the purchasing department know and understand the corporate plan?
• What is the "worst" thing that could happen to our department? What event would have the greatest negative impact on our ability to serve our customers? The next worst? The next worst? If we lose telephone service...
  
• How will we communicate with our customers? How will they communicate with us? What impact does the structure of the organization (single site vs. multi-site) have on our communication decisions? Would cellular phones help?
• During/after a disaster occurrence, will we need special services from the telephone company, such as multiple lines, dedicated switching service, special call groups, etc?
• Do we have emergency phone lists for all purchasing personnel, major internal contacts, and major suppliers/partners? Do we have copies at home as well as at the office? If we lose power...
  
• How will we issue purchase orders? Can we use manual forms? Do we have a supply of manual forms stored in a secure place? How will we control the manual system? If we lose our computer...
  
• If our system is PC-based, do we have adequate backup of programs and data, stored in a secure place? Do we have access to additional hardware if ours is destroyed?
• If our system is mainframe supported, could we employ a stand-alone PC-based program during the period the mainframe is unavailable?
• If we have to move the purchasing operation to an alternate site or if we have to support multiple corporate sites...
• Where will we go? Who will go? How will we get there? What tools, equipment, materials, supplies, will we need to operate there? Have we prepared for transportation, lodging, food, expense money?
• Do we need expanded/increased purchasing authority limits during a disaster recovery period?
• Is a different purchasing organizational structure appropriate after a catastrophic disaster?
• Do we know our insurance carriers' claim requirements? What does purchasing need to do to ensure maximum financial recovery and timely claim processing?
• If our organization becomes eligible for FEMA funds following a disaster, do we know what requirements purchasing must comply with?
• How might our internal and external interfaces change during and after various disaster situations? How will we adjust to support these changes?
• Have we shared our disaster plans and expectations with our key suppliers/partners?
• Whatever disaster plans we implement, what will be the impact of the activity on normal operations? What will we have to do as a result of implementing the plan, to recover, i.e. how will we get back to "normal?"

PRACTICE
How often should we practice our plan to ensure all purchasing staff is familiar with the plan, and that it continues to be appropriate as the organization changes?

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