An article written by the British-based Business Continuity Institute and published in SupplyChainBrain, reports that a survey conducted the BCI determined that “the sources of supply chain failure are deeply rooted.” [“Supply Chains Need to Be More Resilient as Disruptions Are Widespread, Survey Finds,” 4 November 2011] The article explains that the word “failure” is synonymous with “disruption.” It states:

“Respondents from 62 countries revealed that 85 percent of organisations recorded at least one supply chain disruption in 2011 with 40 percent of analysed disruption originating below the immediate supplier. The survey, now in its third year, emphasises the need for a higher priority to be assigned to developing resilient supply chains in the face of systemic vulnerabilities and unpredictable disruptive events.”

Supply chain analysts like Lora Cecere have been insisting for some time that companies need to know what’s happening with their supplier’s supplier in order to make informed decisions, especially in the midst of a potential crisis. The article continues:

“The survey report concludes that effectively managing supply chain continuity is critical not just because of the immediate costs of disruption, but also the longer term consequences to stakeholder confidence and reputation that may arise following a supply chain failure. Further findings include:

• 51% cited adverse weather as being the main cause of disruption, maintaining its prominence from the 2010 report. Unplanned IT and telecommunication outages were the second most likely disruption, affecting 41%.

• Cyber attack has risen to become a top three source of disruption in the financial services sector.

• Supply chain incidents led to a loss of productivity for almost half of businesses along with increased cost of working (38%) and loss of revenue (32%).

• Longer term consequences of disruption in the supply chain included shareholder concern (19%), damage to reputation (17%), and expected increases in regulatory scrutiny (11%).

• The earthquakes and tsunami experienced in Japan and New Zealand [last] year, affected 20% of responding organisations, which were headquartered in 18 countries and 12 industry sectors.

• For 17% of respondents the financial costs of the largest single incident totaled a million or more Euros. This figure almost doubles to 32% where less resilient supply chains are evident in the research.

“Lyndon Bird, technical director at the institute, commented: ‘While just-in-time efficiencies and outsourcing strategies are here to stay in some form, this survey shows it is more critical than ever to strike a sensible balance between the need to drive down costs and the need for these cost savings not to be wiped out through disruption or unacceptable risk exposure, especially in the context of the longer term reputational damage. Business continuity management can help in gaining a better understanding of likely supply chain behaviour when faced by disruption and help build confidence in an effective response and continuity of supply.'”

The word “catastrophe” covers a lot of ground. Have you ever thought about what you would consider a catastrophe for your business? I daresay that most people immediately think about devastation caused by natural events, such as a hurricane, earthquake, tornado, and the like. Next a lot of people would think about IT problems such as data breaches, lost broadband connections, and so forth. My guess is that employee catastrophes are near the bottom of things that many executives think about. In the aftermath of the Japanese emergency and the Arab Spring riots, a lot more executives began thinking about safeguarding their personnel. William Lyons reported that in the midst of Arab Spring uprisings companies realized that “key employees were … unsafe and needed to be evacuated.” [“The Tyranny of Events,” Wall Street Journal, 19 October 2011] Needless to say, companies were torn between “getting them safely to the airport” and making sure company assets were secure before they left. Lyons continued:

“When the looting started, executives needed to be sure that the company’s villas, houses and offices would be secure. As the counter-protests turned violent, corporations working in the country had a duty of care to their local workforce. … Harry Abdy Collins, group operations manager for international risk management company Page Group, … believes that corporate responsibility for local employees has never before been so important. ‘Large corporations cannot afford to gather all their international staff, jump on a flight and think they don’t have responsibility for the people they have left behind,’ he says.”

Charles Blackmore, chief executive of London based Page Group, told Lyons “that companies were unprepared” for the events that unfolded across the Middle East. He said, “Fifteen years ago most companies would send a couple of good blokes who knew how to look after themselves into a country and tell them to get on with it. But in the last decade this industry has become much more sophisticated. We have become much more risk averse and litigious.” Lyons continued:

“Mr. Blackmore recommends that companies working in those countries deemed a medium or high security risk should periodically undertake an objective analysis. ‘If they are a multinational in a predominantly Islamic country, are there aspects developing in the country which they should be monitoring more carefully?’ he asks. ‘What about where people live, what about employees routes to work, the security of the office?'”

If physical threats to personnel weren’t enough to worry about, Lyons also stated that companies needed to think about their employees getting caught up in “corruption, fraud, or a politically compromising situation.” Nick Day, chief executive of Diligence, a business intelligence agency, told Lyons, “that a key part of any successful company operating in hostile environments is gathering local intelligence and working with the local community to mitigate unexpected risks.” He said, “One of the secrets is not the provision of armed guards and security. It is often about developing the right kind of relationship with the local community. If the local community perceives you as someone who is providing jobs and you are tied into the right factions, then you’ll find the local community will provide the outer core and top cover you might need when a crisis breaks.”

Lyons noted that manmade crises, like civil unrest or kidnappings, aren’t the only threats that employees might face. He next turned his attention to natural disasters, like the Japanese earthquake/tsunami. He concluded, “Above all, the most important precaution a firm can take is to ensure the safety of its employees. The worst case scenario is if one of their employees is injured or in extreme cases, kidnapped. It then becomes a failure of duty of care and a reputational issue, especially if the name of the company gets into the media.”

One hybrid catastrophe (i.e., one that involves both manmade and natural elements) not mentioned by Lyons is a pandemic that affects the workforce. Mary Siegfried, a senior writer for Inside Supply Management, wrote, “Imagine that a flu pandemic hits the United States and approximately 20 percent to 40 percent of your work force is ill in waves lasting two to six weeks. Those employees able to come to work must practice social distancing by staying far apart from coworkers, and emergency medical supplies such as face masks and hand sanitizers must be immediately available. One of your critical suppliers is hit so hard by the pandemic it shuts down its operations. Is your supply management organization ready to handle all of this?” [“Are You Prepared for a Pandemic?” October 2011] She continued:

“Health officials say it is not a matter of ‘if’ but ‘when’ there will be a severe pandemic outbreak. The 2009 H1N1 flu pandemic, which the Centers for Disease Control and Prevention (CDC) estimates infected about 61 million people from April 2009 through April 10, 2010, was not as severe as expected. A flu pandemic is an outbreak caused by a new human flu virus that spreads around the world. Because it is a new virus, few people have immunity, and it can spread easily from person to person. Influenza also is unpredictable and can occur in waves, lasting for a year or more. … In today’s global economy, businesses shouldn’t ignore the need for pandemic planning, because a flu that starts in a remote part of the world can spread quickly with far-reaching ripple effects.”

Siegfried explained that it’s not just a matter of waiting for employees to get better, “the World Health Organization’s (WHO) epidemiological models project that a pandemic could result in anywhere from 2 million to 7.4 million deaths worldwide.” Lisa Koonin, senior adviser, Influenza Coordination Unit for the Communicable Disease Center in Atlanta, told Siegfried that she “encourages businesses to plan for an influenza pandemic because they will be on the front line protecting the health of their employees.” She advises businesses to:

• Integrate a pandemic plan as part of an overall business continuity or emergency disaster plan.
• Be aware that during a pandemic, flexible human resource policies will be needed to protect the health of employees.
• Assess the level of absenteeism that would be disruptive to the operation and take steps to prevent that level of absenteeism from ‘capsizing the ship.’
• Empower employees at various locations to communicate with emergency planners and public health officials in advance to know about and participate in community emergency plans.

Reggie Hair, manager, business continuity planning at Sprint, told Siegfried that when a company is “formulating guidelines for pandemic planning, … it is important to pull together employees who know the overall business operations as well as representatives from specific business units.” The devil is always in the details and only personnel from specific units will know those details. When it comes to preventing the spread of disease at work, Siegfried notes that social distancing is probably the best way to stop the spread of disease in the workplace. She wrote, “Social distancing, in its simplest form, is separating employees from each other. It can include steps such as teleconferencing, staggered works shifts and even physical barriers to distance workers.” She continued:

“Hair says another key element of a pandemic plan is developing strategies that business units can implement to protect employees and keep the business operating. … Experts agree that supply management organizations will play an important role in pandemic planning — ensuring the continuity of the supply chain during a pandemic as well as obtaining needed emergency supplies for employees’ health and safety.”

Siegfried raises an interesting point about adapting supply chains to provide emergency supplies. In a pandemic, all economic sectors become fully involved. They will all have to be fully involved in working through the consequences of the pandemic as well. Supply chains will play a huge role. Siegfried explained:

“Obtaining needed emergency medical supplies is one supply chain issue, but both Koonin and Hair agree that businesses also have to be proactive in protecting their supply chains from a pandemic. Koonin says geographic diversity in the supply chain is a concept businesses should consider in pandemic planning. Having suppliers in different locations around the world could lessen the impact on a supply chain if a pandemic hit one country or region harder than another. She also suggests that businesses plan for various supply challenges, including logistics problems.”

Siegfried concluded her article with “some of the lessons learned about pandemic planning by businesses and health officials. They include:

• Many parts of a pandemic plan also can be used to keep a business running during a severe winter storm or natural disaster.
• The timing or severity of a future pandemic can’t be predicted, so create a flexible plan that includes strategies that might be needed for a moderate or severe pandemic.
• Keep pandemic planning at the forefront by hosting flu vaccination clinics, publishing newsletters highlighting health and safety issues, and periodically testing pandemic and emergency preparedness plans.
• Monitor and rotate dated emergency medical supplies.
• Use resources such as the CDC (www.flu.gov/professional/business), which offers sample pandemic plans and checklists as well as educational resources. Other resources include: Occupational Safety and Health Administration (OSHA) (www.osha.gov/dsg/topics/pandemicflu/index.html); World Health Organization (WHO) (www.who.int/csr/disease/influenza/pandemic/en); and the U.S. Department of Homeland Security (www.dhs.gov/files/programs/editorial_0760.shtm).

Making supply chains resilient is an important activity. It’s important to remember, however, that supply chains are run by people and when people are taken out of the system, it can be as devastating to a company’s operation as losing a supplier’s factory or one of its own. In the second of this two-part series, I’ll discuss planning for a catastrophe.