Monday, 28 October 2013

Managing supply chain continuity

David Window
Continuity 22301 Ltd

As a member of three institutes - Institute of Risk Management, Business Continuity Institute and the Chartered Institute of Purchasing and Supply - I hope to explain why as business continuity professionals, we struggle to engage with my alter ego - the procurement professional.

Over the last two years I have been debating this topic with a colleague who is an accomplished procurement professional and we have challenged each other considerably in our efforts to justify the question, “why bother doing business continuity in supply chain”. We have also interviewed other procurement professionals to gauge our opinions against theirs.

The short answer we believe is that procurement professionals, especially those who use category management techniques, are incentivised to make savings. Resilience comes at a cost and this cost erodes savings.

Yet how many times during the period of a contract do businesses suffer minor disruptions, delays to a service or product delivery, how much additional cost do they incur which is not captured and quantified but still erodes the original savings?

Category Managers deal with strategic sourcing and that very name should ring alarm bells with business continuity professionals. When they are sourcing goods and services of strategic importance, potentially time critical, urgent goods and services, which the business depends upon, then they need to consider business continuity for continuity of supply.

So the business continuity professional encourages them to seek assurances on their supplier’s business continuity preparedness. The hard part is convincing them of the value of doing so for a future event that they can’t perceive of. This is because their minds naturally move into the area of probability. How often do we, as business continuity professionals, hear the words “what are the chances of that happening?”

Whatever your opinion is of risk management and the concept of estimating probability, I would suggest that it is a natural instinctive thought process that we as humans undertake daily even as we cross a busy road; we evaluate the risks and the probabilities.

So as business continuity professionals we need to speak the language of risk too and we need to understand the concepts of total cost of ownership and the drivers for procurement professionals, before we stand a chance of successfully engaging with them.

Consider that there may be something called the risk assessed total cost of ownership, whereby through modelling your supply chain you can assess the inherent risks within it before entering into a contract. Suppose through that analysis you can understand when it is appropriate to use risk mitigation strategy and when to use business continuity strategy and tactics cost effectively.

Now suppose that you could do that in a way that enthuses procurement professionals and top management alike by offering a potential estimate of quantifiable impacts caused by any minor or major supply chain failure.

If, as a result of this analysis, procurement professionals made more informed decisions when strategic sourcing, having an insight into the inherent risks and knowing when to incur costs on risk mitigation strategies, continuity strategies and tactics. Does that sound better than simply asking for a tick box questionnaire to prequalify your potential strategic partners who deliver time critical goods and services to your business?

The Good Practice Guidelines 2013 advocate both multiple suppliers and buffer stocks, but these carry a cost in the eyes of the procurement manager. Where these alternative suppliers are based and where you hold that contingency stock falls more into a risk assessment model, knowing your supplier is in a geopolitical area that carries a risk of a supply disruption may be sufficient for you to source elsewhere.

A risk assessed approach to establishing the total cost of ownership by procurement professionals may lead to exposing known risks and therefore require an amendment to the sourcing strategy. In circumstances where you discover that the options for supply are limited by a variety of imperatives such as cost, location, availability or uniqueness, a risk mitigation strategy may have limited benefit for these supply lines so you must delve deeper into your supplier’s resilience. Most importantly you must understand the costs involved.

As with all things business continuity, it is those business elements that are time critical or urgent, and therefore within the scope of business continuity, that need to be given scrutiny, not all your supply chains.

It is important to justify the need for business continuity to procurement professionals and to top management, by talking their language, commercial drivers, and cost of impacts for time critical supply chains need to be part of the assessment prior to committing a business in a purchase contract.

Finally, ask yourselves the following questions, is it sufficient and productive to ask suppliers to complete questionnaires when you prequalify them in order to be a part of a competitive tender? Does this add value to your procurement process? If you ask for a copy of their plans are you really competent to assess its efficacy? I would suggest the answers to all of these questions is no.

David, along with Brian Leigh of QiPS Consulting Ltd, will be discussing this issue further in his Practitioner Presentation at the BCM World Conference and Exhibition. The Practitioner Presentations are part of the seminar programme at the free exhibition.

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