You Can’t Play Ostrich with Supply Chain Risks

Stephen DeAngelis

December 16, 2019

The late George Alfred Carman, a leading English barrister, once stated of an acquaintance, “He behaved like an ostrich and put his head in the sand, thereby exposing his thinking parts.”[1] Companies who metaphorically bury their heads in the sand rather than confront supply chain risks are also exposing their thinking parts. According to Bertrand Maltaverne (@bmaltaverne), a self-proclaimed Procurement digitalist, a number of companies are poised to get their butts kicked because they metaphorically burying their heads in the sand. He explains, “Despite the general consensus that risk management is important, recent studies have found that many companies still have a long way to go and a lot of work to do.”[2] He adds, “Today’s global business ecosystems are precarious. And it’s not just the potential for international conflict and instability that is making business riskier. Many countries have also introduced new regulations on sustainability (modern slavery, conflict minerals), or diversity, which add new risk factors in terms of compliance.” He goes on to offer three reasons companies ignore supply chain risk at their own peril. They are:

 

Reason #1: Risk is everywhere. “We live in a troubled and complex world,” Maltaverne writes. “There is no shortage of events that could jeopardize and/or disrupt a business, potentially impacting their profitability, business continuity, image, and reputation. Protecting your business from these disruptions is challenging, because they can originate from so many different sources. Natural disasters, accidents, social events, changes in regulations, intellectual property infringement, quality issues, and attacks on cybersecurity are just a few examples.”

 

Reason #2: Black swans are not an excuse to ignore risks. Black swans are unforeseeable, and sometimes rare, events. Maltaverne writes, “Anything can happen, even a shootout at the Mexican border. … Such ‘black swans’ exist, and planning for the seemingly impossible is another lesson learned from ‘Best in Class’ organizations regarding risk management: being prepared for problems enables companies to react faster to unforeseen events. They become anti-fragile! … The only solution is to imagine different scenarios for potential problems. These scenarios can either be based on experience (problems that already happened to other organizations) and based on brainstorming (a.k.a. risk identification). … Organizations that have invested time and energy into identifying risks, assessing them, and defining ways to mitigate them are better at managing incidents they did not anticipate.”

 

Reason #3: Supply chain issues are costly. Burying your head in the sand won’t prevent disruption costs from kicking you in the butt. Maltaverne explains, “There is no universal ‘best practice’ recipe per se; only best practices in a certain context. But, what is certain is that not taking care of risk can be costly. A 2018 study by the Business Continuity Institute and Zurich Insurance Company examined the financial impact of supply chain disruptions. The findings revealed that not only disruptions have a cost when they occur, their effects can do lasting damage. It takes months to recover and, in many cases, there is no full recovery!”

 

Prevention is better than cure

 

Maltaverne strenuously argues companies should be proactive in their approach to supply chain risk management. He writes, “Risk management has been a relatively passive domain for a long time, and it has frequently (and problematically) been equated with crisis/incident management. People were looking into risk management after an event had already happened; i.e., too late! This was because the world of yesteryear was more stable and pretty predictable. In today’s world and in the future, the accelerating pace of change and the expanding globalization of the economy mean that anticipation is crucial.” Some risks are foreseeable, like hurricanes during hurricane season or earthquakes in areas prone to them. Companies are foolish if they don’t have plans on the shelf for dealing with the consequences of foreseeable events. The question is: How do you deal with the unknown?

 

Preparing for the unknown might seem like an impossible task; however, Cathy Morrow Roberson (@cmroberson06), founder and head analyst of Logistics Trends & Insights, LLC, writes, “Fortunately, through the use of technology and data analytics, there are ways for commercial shippers and service providers to mitigate these risks.”[3] Failure to use these tools can have serious consequences. Roberson notes, “Supply chain disruptions continue to grow at an alarming rate, with 73% of businesses experiencing a supply chain disruption in the past year. Equally alarming? The rise in costs associated with these disruptions, which can run into the billions.” She stresses technology is only part of the picture. “In an industry where disruption is a way of life,” she writes, “having the right tools, people and processes in place can help you stay nimble and minimize risk.” Tobias Larsson, founder and CEO of Resilience360, told Roberson, “[Historically,] risk planning often took a backseat to optimization. Mitigating ‘as best as possible’ was the norm.” Mitigation is better than recovery; nevertheless, companies can do better.

 

Resilience rather than recovery

 

Dave Brunswick, Vice President of Solutions with Cleo, insists the best way to make supply chains more resilient is to include the entire supply chain ecosystem in the risk management process. Unfortunately, he writes, “The truth is that many organizations’ supply chains are not currently equipped to support the ecosystem approach, and these companies therefore need to transform their operations and IT infrastructure to ensure they build resiliency into the core of their business.”[4] Nicholas Bahr, global practice leader for operational risk management at DuPont Sustainable Solutions, agrees companies need to focus more on resilience — that is, focus on business continuity. He explains, “More than glorified crisis management, successful business continuity anticipates changing conditions and ways to adapt to those changes and thrive.”[5] He adds, “Traditionally, companies have simply relied on emergency and crisis response plans, but forward-looking companies prepared for potential significant events by developing a business continuity management (BCM) system, which though wise, was often done with the goal of simply recovering from a natural disaster or other catastrophe should it occur. In other words, just a slightly modified crisis management plan.” He believes more must be done. He explains:

“Successful companies view BCM as much more than just a way to simply recover from a significant incident. They view business continuity as a way to anticipate changing conditions, adapt to those changes and, more importantly, to thrive. In other words, they become more resilient. … Resilient organizations are those that demonstrate the ability to anticipate a disruption and assess all risks and threats that cause a disruption; develop proactive plans and conduct necessary preparations to protect the company from disruption; effectively implement those plans to successfully respond and recover from the disruption; and then adapt to the ‘new normal’ resulting from the disruption to not just resume operations but learn from the experience to operate more effectively moving forward.”

Bahr concludes, “Looking at BCM through the lens of building organizational resiliency will enable companies to do more than simply respond to an incident. It will empower them to maintain control and successfully navigate various business disruptions that would otherwise take a toll on operations and reputation.” Before closing, let’s clear up what it means to “play ostrich.” According to the San Diego Zoo, “Contrary to the popular myth, ostriches do not bury their heads in the sand! When an ostrich senses danger and cannot run away, it flops to the ground and remains still, with its head and neck flat on the ground in front of it. Because the head and neck are lightly colored, they blend in with the color of the soil. From a distance, it just looks like the ostrich has buried its head in the sand, because only the body is visible.”[6] A company that plays dead when confronted with disruptions is not going to survive in today’s volatile environment any better than one that buries it head in the sand.

 

Footnotes
[1] George Carman, “Ostrich Quotes,” BrainyQuote.
[2] Bertrand Maltaverne, “Ignore Supply Chain Risks … At Your Own Peril!,” Procurious, 23 September 2019.
[3] Cathy Morrow Roberson, “Preparing For The Unknown In Your Supply Chain,” Forbes, 7 October 2019.
[4] Dave Brunswick, “Building Resilient Supply Chains Across a Volatile Business Landscape,” SupplyChainBrain, 7 October 2019.
[5] Nicholas Bahr, “Resilience, Not Recovery,” IndustryWeek, 21 October 2019.
[6] Staff, “Ostrich,” San Diego Zoo.