The Opinion Page
News and comments about the issues facing today's SCM and Inventory Management professionals.
The following article, authored by "yours truly," was published in the Durham Business Times, April 2011 edition. I hope that you will enjoy:
That businesses in the Durham Region will face a significant disruption to their operations from some external, uncontrollable threat is a virtual certainty.
The H1N1 pandemic of 2009, the G20 Conference of 2010, and the Great Ice Storm of 1998 are in the past. While Canada remains one of the safest and most stable countries on the planet, we are not immune from the impact of catastrophes, natural or man-made. Now is an ideal time to reflect on what we have learned, to prepare for future challenges. Threats to commerce can include blizzards, tornadoes, floods, blackouts, labour disruption, social unrest, political activism, and even Icelandic volcanoes.
Developing a plan that will help a firm weather the storms of such threats is sound business practice. Well-managed companies have done just that. Indeed, some large industrial customers have demanded it of their suppliers, building it in to vendor quality assurance initiatives. The supply of items that are critical to operations is thereby secured.
Companies’ supply chains present unique challenges to developing a Continuity of Operations Plan. A commercial environment marked by just-in-time (JIT) inventory management, global logistics, and international sourcing makes the supply chain particularly vulnerable. Natural disasters, pandemics, and political unrest can close borders, inhibit the flow of materials, and force enterprises to redeploy resources away from normal activities.
Management at Ontario Power Generation (OPG) have been proactive in the field of risk mitigation. In 2007, Todd Hall, now Director of Sustainable Development at OPG, was assigned to study the threat of an influenza pandemic. His task, as part of a broader team, was to devise a plan that would manage the risk to supply chain operational continuity. In doing so, OPG pre-empted the July 21, 2009 report of the Conference Board of Canada that urged organizations to act in this regard while they still had time in view of the H1N1 swine flu pandemic of 2009. Being a part of Ontario’s critical infrastructure, the pandemic management plan ultimately became an integral part of OPG’s emergency response program.
Hall and his team decided to manage this risk before it managed them. “Planning for any disruption to the continuity of business, influenza pandemic or otherwise, is an exercise in risk management. Simply identify and characterize the risk, and to the extent possible employ existing controls and business processes. While this is simple in principle, it can be demanding in application,” commented Hall.
Fortunately the H1N1 pandemic was relatively mild. This does not undermine the importance of preparation. Simply because H1N1 is over, does not mean that another pandemic cannot strike. They happen periodically. They are unpredictable. Rates of infection tend to be high. A pandemic has the potential to significantly impact business continuity by adversely effecting economics and societal infrastructure.
A future pandemic event could overload an already stressed health care system. The need for vaccine might outstrip supply. Disruption could grow as worker absenteeism becomes exacerbated not only by employee illness itself, but also by caring for loved ones, and through fear of infection. Travel bans may be put in place. Schools and businesses could close.
Some might be reluctant to accept that the occurrence of an influenza pandemic is a certainty. Hall and his team overcame such scepticism and achieved success. Their mandate was clear: provide all available production capacity under all credible risk scenarios. Their task was to establish all reasonable assurance that commodities and services that are critical to the continuity of businesses are available.
To build a successful plan, those items, materials, services, facilities and equipment critical to achievement of the mandate must be identified. Define essential staff positions. Recognize regulatory commitments. Review supplier and customer relationships, including contractual arrangements. The planning team should strive to facilitate effective and ongoing engagement of key stakeholders.
It is important to critically review lists of critical commodities and services, and to recognize that some business units and activities may not be essential. Impacted firms may not be able to operate in a business-as-usual mode. Resources will need to be focused as strongly as possible on activities that deliver the primary objective.
The impact of a pandemic, or other irrepressible challenges, can be reduced if plans are made ahead of time. Such planning activity should be done in the spirit of prudence and continuous improvement.
Hall says, “Establishing a pandemic plan is like buying fire insurance – you may not need to use it, but can you afford to be without it?”
John Skelton is the Principal Consultant and founder of Strategic Inventory Management.