Posts Tagged ‘supply chain’

Recession recovery poses crisis management risks for industry

On the weekend I wrote a post for our new Energy & Industrials team blog, titled Habitual behaviours force shippers and miners into crisis management mode.

The basis for the post was the correlation between:

 “…two seemingly unconnected events…25 people were killed in a West Virgina mine exposion [and] a Chinese coal carrier ran aground on the Great Barrier Reef…I say ’seemingly unconnected’ because geographically the two events are about as far apart as you get. The respective industries are also unrelated…”

The connection is actually in the habitual behaviours performed by the respective companies, and to learn more about those you should click on the link above and read the original post.

What I’m more interested in here is a quick look at the sheer volume of corporate crises that we’re seeing in 2010. At least four major car makers (Toyota, GM, Honda, Nissan) have had multi-market product recalls. At least two major consumer brands (Nestlé, Unilever) have had issues with palm oil. I’m not even going to touch anything that’s been specifically labelled as a “social media crisis” in this list of examples.

Looking at all of these, the common link is still habitual behaviours. Whether it’s cutting corners on safety or engineering standards, taking short-cuts on voyages to speed up transit times, weakening the supply chain by creating untenable bottle-necks or driving suppliers down to almost margin-less prices, or other unsustainable corporate behaviours…none of these things are “one-offs”. They are all tried and tested behaviours that have become ingrained in an organisation’s culture.

When the global financial crisis hit, many of my clients assumed I was run off my feet with crises. The opposite was true. One or two disasters in a recessionary environment will have a much greater impact on business managers than they would do in the good times. (RM, if you’re reading this, I was still busy!)

In the past 18 months we first saw a deluge of stories about banks’ risk managers being ignored, followed by story after story about careers in risk management being the new black. When the economy is in meltdown and your business is more exposed than ever before, you pull all the stops out to ensure crises just don’t happen. When the revenue tap gets turned back to a trickle, you cut “non-essential” operations – those pesky things like marketing budgets (where’s my ROI???), crisis training (why are we doing this if we haven’t had a crisis in three years???), media monitoring (we’ve cut our marketing, we don’t need to pay for media clips???).

Which is why we now have problems.

After 18 months of hyper-sensitive operational behaviour I think companies have forgotten what it’s like to have to deal with a crisis. Regardless of the growth in social media over the same time, the fundamental principles of good crisis management haven’t changed, but it seems the effective execution of those principles has gathered enough dust to make a real difference. This has been compounded by those bad habits being repeated faster, on a bigger scale, as companies try to trade their way back to the heady days of 2007.

There’s not actually any reason why so many of the high-profile crises of the past six months should have made the headlines to the extent they did.

I expect we’ll see still more high-profile crises rolling out before the end of the year. It should be a good year for crisis management consultants, because for every company in crisis today there are usually three or four who were lucky it wasn’t them. But that’s not good news for shareholders.

Supply chain is your business’s Achilles Heel

Last week I attended the latest Dow Jones Expert Series seminar, and at this point I’m about to lose 90 percent of the visitors who just clicked through from Twitter, because I’m not going to bang on about social media.

When it comes to being in business, your success or failure depends more than anything else on your ability to actually do business. That means having something that a customer wants, and being able to sell that thing at a profit.

If for any reason you’re unable to do that, you have a problem. Assuming for the minute that you have a market that’s happy to pay your price, it’s your “thing” that becomes all important.

Enter the supply chain. Whether you’re making chocolate bars, cosmetics, cars or fighter planes, chances are you have multiple suppliers all providing you with different ingredients or components. If you’re an international business, odds-on that you have international suppliers. And if you’re cost-conscious, I’ll put another each-way bet on the fact at least part of your supply chain is based in Eastern Europe, Africa, Central or South America, or Asia.

Right about now you should be starting to get a little bit squirmy as you realise the exposure your business has to events outside of your control. If not, here’s a tip: civil unrest, terrorism, despotic regimes, earthquakes, floods, tsunamis. Here’s another you may be increasingly familiar with. Ethical sourcing.

Interestingly though, these aren’t your most likely sources of supply chain disruption.

According to Dr Brian Squire from Manchester Business School, around 88 percent of publicly reported supply chain disruptions between 2000 – 2009 were due to human influences. Think user error, industrial dispute, cyber crime, corporate sabotage, ordering the wrong widget…

Even more interesting (I think) is that 40 percent of those were classifiable as “deliberate”. When I say “interesting”, what I really mean is “pretty bloody disturbing”.

I was really impressed with Nick Wildgoose, Global Supply Chain Product Manager, Zurich Financial Services, who also spoke at the event and provided some best-practice insights into identifying, managing and mitigating risks in the supply chain. Here are a few pointers that should be considered when you next review your organisation’s crisis management planning:

  • Is our supply chain likely to be impacted by natural diaster, such as pandemic or earthquake? (Tip: if you’re making stuff in China…yes)
  • Is our supply chain exposed to any single-source issues? (Tip: if you’re sourcing anything from only one supplier at any point, then yes. This is part of the issue with the glut of automotive recalls in 2010)
  • Do we, or any of our suppliers, have issues with trade unions? (Tip: if you have a unionised workforce and you’re in a manufacturing business then…probably)
  • Are we happy with our own, and our suppliers’, business continuity planning? (Tip: you probably shouldn’t be if Zurich’s statistics were anything to go by)
  • Do we have multiple points of contact with our key suppliers, or is our relationship purely transactional? (Tip: if your business is dependent on the survival and performance of another business, it’s probably a good idea to have multiple relationships with that business)

We’ll endeavour to add some further detail to this topic in the coming weeks, but as a starting point I’d strongly suggest asking the hard questions sooner rather than later.

Plug alert: Manchester Business School is conducting further research into supply chain risk and resilience. Please contact Dr Brian Squire if your organisation would be willing to take part.