A monthly look at global resilience trends and expert opinion from our man in London
By Lyndon Bird
Chair of the DRI Future Vision Committee
I have never understood why suppliers and supply chains have not featured very much in many corporate business continuity programs. Before I ever knew there was such a subject as BCM, I was responsible for production planning and distribution logistics in a pan-European chemical business. It was axiomatic to me that supplier failure to deliver raw materials on time was critical so we, of course, mitigated those risks with duplicate suppliers and safety stocks of inventories (both raw materials and finished goods). We didn’t think this was business continuity or risk management – just good common-sense.
Sadly this did not always work; being dependent on key petrochemical feed-stocks meant we were also dependent upon global oil fluctuations. Like most companies we secured a critical level of supply via long-term contacts but took spot market opportunities to purchase additional supplies. I well remember a global shortage of some basic raw materials which resulted from the US decision to ban lead in gasoline back in the 1980s. Lead was initially replaced by toluene – which immediately took it into short supply for further downstream processing. Not predicted and not the intention of the legislators, but nevertheless a severe (and in some cases terminal) problem for smaller chemical producers.
Soon after this, manufacturing got “smart.” MRP1 and MRP2 made us believe we could plan and predict everything. “Just in Time” allowed us to almost eliminate our inventories while transferring the risk/cost of our outages to our suppliers. Lean manufacturing and squeezing value out of our supply chain become the norm. Collaborative management (partnering) with our suppliers made us believe that single source supply was the way ahead. We outsourced everything that which we didn’t think was core, operations carried out further and further away from our markets. The length and complexity of our supply chains became impossible to control, to a point which we had little idea of who we were dealing with below Tier 2 on the chain.
These issues might be more acute in industries where a lot of physical movement of goods are essential – such as manufacturing or retail – but the one thing all businesses have in common are suppliers and customers. We are all somewhere in the supply chain of everyone – maybe a minor player, maybe a super-critical player. So when we worry about natural disasters, terrorist attacks, political unrest or any other factor which can disrupt our activities, we need to remember that the same threats exist for all of our product and service suppliers and some of them will be in territories we hardly know and facing risks we can hardly comprehend.
Ultimately, however, knowing a problem exists does not necessarily give us a simple solution. The world is not going to revert to a time before globalisation and multi-national companies are not simply going to source everything locally, hold higher inventories or keep redundant resources just in case they are needed. So we have to track the risks involved and manage them better.
We need to better understand our key suppliers and what we can expect from them in an emergency. We need to help them deliver what we need from them, not threaten them with non-compliance penalties at every opportunity. This is a fine example of how business continuity can help facilitate better resilience in an organization. Using the understanding we have of priorities, processes and dependencies, we can work with procurement to identify critical suppliers based upon their disruptive potential to our success rather than how much we buy from them in dollar terms. We can work with logistics to help them understand the implications of the decisions they take when they select distribution centres and carrier networks.
This has been brought home to me recently as the unfolding migration crisis builds across Europe. Migrants fleeing war-torn parts of the Middle East and Africa find increasingly desperate ways of getting into what they see as the safety of Europe. Many are bitterly disappointed and are finding life very challenging when they arrive in countries unable to support them.
The open border policy within much of Europe has been tested beyond the level it was designed for as crisis after crisis erupts in Greece, Italy, Hungary, Austria, Serbia and even Germany. Most migrants want to settle in Germany, Sweden or the UK but those countries are naturally eager that they are more evenly spread across the continent. The UK has the advantage of not adopting an open borders policy and the physical separation by sea from the rest of her neighbours. However policing this situation has caused chaos on both sides of the English Channel with delays of many hours or even days to commercial carriers in both Britain and France.
It cannot be long before other crucial European supply routes are threatened by occupation and violence as desperate and frustrated people fail to find the safety and support they expected. Now that many countries are shutting borders to migrants, dangerous conflicts are starting to happen. It would seem inevitable that cross-border shipments (the life-blood of the European economy) will be threatened. This, together with increased nationalism being displayed almost everywhere, will surely require us to re-visit some of our assumptions about how far globalisation will really take the world.
- How important is supply chain resilience to your company’s success?
- Does your organization engage in these vendor issues?
- What are the top three supply chain risks you envision?
Keep the discussion going! Click here to follow Lyndon’s discussion thread on LinkedIn, and share your perspective. Lyndon will use the LinkedIn discussion space to update you on the results of the discussion poll questions and invite additional feedback.