Next to a safety or environmental disaster, an unplanned business interruption can be one of the costliest events for manufacturers. A disruption can cause production shutdowns and supply chain delays. According to the International Society of Automation, the average manufacturing business loses 5-20% of its annual productivity to unplanned downtime.1
For small to large-size businesses, the ability to quickly recover from disruptions can make the difference between survival and failure. This is why a robust business continuity plan (BCP) can help safeguard your operations and create long-term stability for your business.
“A business continuity plan sets businesses apart in their approach to risk,” says Kevin Kurpinski, manufacturing industry practice lead at The Hartford. “We have seen businesses operate with a BCP, and while it doesn’t stop a property loss, it can be the differentiator in how long a business goes interrupted in an emergency.”
Identifying Risk Before It’s a Problem
Manufacturers with inefficient maintenance processes generally experience poor equipment reliability, have large work order backlogs and pay more overtime than necessary to get work done. The average manufacturer encounters about 800 hours of equipment downtime per year, more than 15 hours per week. For example, the average automotive manufacturer loses $22,000 per minute when the production line stops. Overall, unplanned downtime costs industrial manufacturers as much as $50 billion a year.2
“Equipment breakdown is likely going to impact a company’s ability to operate at full capacity and in some cases cause a complete shutdown,” says Scott Harris, assistant vice president of product development for Small Commercial at The Hartford. “There are a variety of impacts, including repairing or replacing the equipment or spoiled stock. You also need to consider the overall income loss and the extra expenses, like renting replacement equipment or finding another space to operate in the interim. It can be a make-or-break situation for a business.”
Many manufacturers rely on reactive, run-to-fail maintenance processes, performing repairs only after the equipment has broken.3 A business continuity plan (BCP) can help businesses identify and mitigate potential risks before they happen.
“A BCP allows a company to proactively think about risk,” says Harris. Particularly with small businesses, it comes down to reviewing the history of loss and conducting a risk analysis to identify all possible interruptions. This allows companies to be proactive rather than reactive during an event that shuts down operations.”
If your production equipment breaks down or your business has a utility interruption event, a business continuity plan (BCP) can help restore your company’s operations faster.
Kurpinski recalls an example where a food manufacturer had a pipe break that caused wastewater to flood across the main production room. They didn’t have a business continuity plan, and it took a year for them to become operational again. He adds that it took almost five months for the company to find a competitor to make their product while their plant was being repaired.
In the event of a breakdown, there is often a halt in production. If your product is off the market, the public might move on and find another to purchase. Additionally, if you have contracts to fulfill and no product, you might be in legal breach of the agreements and lose customers.
How To Create a Business Continuity Plan
Major operational breakdowns can happen in any business. That’s why it’s important for small to large-size businesses to ensure a formal business continuity plan exists so everyone knows their role in potential emergencies. Both Kurpinski and Harris say a BCP should be in writing and communicated regularly with leaders, employees and any other parties key to the business. Keep these five steps in mind when creating your company’s plan:
1. Start with a Risk and Impact Analysis
Risk assessment and impact analysis involve identifying different situations that might disrupt your business, estimating the probability and reviewing the consequences they could have. By understanding the scope of possible disruptions within your processes and facilities, you can make smart choices when it comes to setting a recovery timeline and prioritizing your efforts.
When creating a BCP, it’s important to review your current assets and where potential vulnerabilities lie. Key equipment, business location and emergency backup power sources should be identified. Additionally, reviewing your limits and sublimit is essential when thinking about the potential loss.
“We see surge losses causing the largest malfunctions or shutdowns to small businesses,” says Harris. “These losses can break equipment, spoil products and create havoc for small business owners. Additionally, recent extreme weather dominates business interruptions for mid to large businesses.”
2. Identify and Detail Potential Recovery Strategies
In the event of a business disruption, be sure to outline specific recovery strategies. These can include practical steps to bringing systems back online, recovering data, resuming production and other activities that ensure your business returns to normal operations.
Getting your products on the market and creating revenue is key for your business, so it’s essential to establish mutual aid agreements with other businesses similar to yours.
“Your BCP should include a written agreement with a friendly competitor that is willing to step in and help manufacture your product until your business is back up and running,” says Kurpinski. This partnership could help you fulfill orders and make good on your delivery timelines, so you don't lose your contracts and stay relevant in the marketplace.”
3. Create Your Recovery Team and Assignments
Business interruption is an all-hands-on-deck situation. There should be formal documentation identifying which employees or teams will take charge during the disruption. It should outline clearly defined tasks, decision-making authority and communication channels. As roles evolve, be sure to review your assignments on an annual basis.
4. Establish Communication Guidelines
In the event of an emergency, you’ll want to have pre-established communication channels to share information with your team, stakeholders and the public. Your guidelines should specify who’s in charge of updates, where you will communicate and how often you’ll communicate.
5. Continue with Regular Testing and Training
Your BCP should stay relevant and effective. Consider appropriate team training with regular tests using simulations to help you identify gaps and areas for improvement as your organization evolves.
Overall, a BCP cannot stop emergencies, however it can ensure you are prepared.
“A business continuity plan is so important when we think about loss,” says Kurpinski. “You must think about your building, stock and your business income (BI). If you don't have a formal business continuity plan, you're going to be in the 100% probable maximum loss (PML) category for, at a minimum, your BI limit. However, if you do the leg work on the front-end you are well positioned to protect yourself and your likelihood of the loss goes down. You're better able to respond when something unforeseen does happen and it makes your insurance more attractive in the marketplace,”
Finally, consider that a BCP may have significant value well beyond the moment it’s needed in an emergency. “Creating and maintaining a solid BCP is simply good governance,” said Harris. “Companies with a solid mechanism to identify and deal with evolving risks can potentially save money and grow faster.”
1,2 Unplanned Downtime Costs More Than You Think, Forbes, February 2022.
3 The maintenance function, like manufacturing itself, is a rapidly changing environment, Plant Engineering, June 2021.
The information provided in these materials is intended to be general and advisory in nature. It shall not be considered legal advice. The Hartford does not warrant that the implementation of any view or recommendation contained herein will: (i) result in the elimination of any unsafe conditions at your business locations or with respect to your business operations; or (ii) be an appropriate legal or business practice. The Hartford assumes no responsibility for the control or correction of hazards or legal compliance with respect to your business practices, and the views and recommendations contained herein shall not constitute our undertaking, on your behalf or for the benefit of others, to determine or warrant that your business premises, locations or operations are safe or healthful, or are in compliance with any law, rule or regulation. Readers seeking to resolve specific safety, legal or business issues or concerns related to the information provided in these materials should consult their safety consultant, attorney or business advisors. All information and representations contained herein are as of October 2024.
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