Supply chain risk is often thought of only in terms of how the failure of such chains could disrupt a given organisation’s day-to-day operations. In the modern and interconnected world, localised operational disruptions, often caused by relatively mundane incidents such as power failures, flooding or fire, frequently create more than just a small problem for the operations of a single business. As Dr Sandra Bell observes, many trigger a ripple effect that’s felt by others: employees, clients, shareholders, regulators, the media and suppliers.
Even relatively minor disruptions now frequently upset the wider, delicately balanced commercial web in which organisations operate. This is particularly acute in the service sector, of course. Think of the carnage that has now become commonplace following small IT glitches in both the airline or banking sectors.
Suppliers, stakeholders and customers alike are now almost immediately aware when something happens to your business through channels such as social media and can, and will, take action to cut you out of their global supply chain if they think you’re a risk. Competition is fierce, and no-one is completely irreplaceable. Think of a football player who’s substituted off the pitch, never to be brought back on again. Like them, you will not want to give others the chance to prove that they can do the job better than you.
Business continuity teaches us to minimise our supply chain risk by having multiple suppliers for key products and services. It has also become common practice to try to further reduce risk by arms-length contracting and ‘incentivising’ supplier performance with hefty fines for non-delivery. These are both excellent strategies if all you want to do is merely ‘survive’ a disruption.
However, the modern consumer, who has access to the global marketplace, is no longer satisfied to wait for an organisation to execute a heroic recovery and will vote with their feet at the first sign of trouble. Today’s organisations therefore need to be able to ‘thrive’ despite uncertainty and disruption. To do that, they need friends.
The key ingredients
So what are the three key ingredients for being able to thrive? First, you want to be adaptive, knowing when to change and optimising yourself to the outside environment. Leadership is also crucial – with leaders instilling in people the will to succeed.
The third and final area – and one which is frequently neglected by organisations – is their network. Forging and maintaining effective relationships with stakeholders, customers and suppliers is a key component to not simply being able to maintain successful operations, but also competitive advantage, profit and growth.
How can organisations move from arms-length adversarial relationships to ones where they’re mutually supportive without placing themselves at undue risk? The first thing to do will be to assess the value that’s in each relationship. For example, is value measured simply by the commercial contribution that each individual makes? If that’s the case, the relationship will only be safe when hard value is being provided.
In contrast, closely coupled networks, where parties help each other out when things go wrong, will be more resilient. Highly collaborative relationships where knowledge and insights are shared mean that people will think twice about dropping you like a stone when things go wrong.
Five key steps to take
Here are five key steps organisations should take to strengthen their network and boost resilience:
(1) Analyse how much flexibility and agility your relationships have in them: Flexible relationships should be joint and supportive rather than adversarial. If your organisation wishes to be resilient, you will not just look at your risks, but also look at how the risks present within the entire value chain are best shared among its players
(2) Communicate risks, issues and near misses to your network: Speaking to your suppliers, vendors and customers at the earliest stage possible when something goes wrong demonstrates foresight, agility and integrity and will help you to avoid ‘trial by twitter’
(3) Work on joint future products and services: This signals to the rest of your network that you’re investing for the future and that the business isn’t just in it for the profit
(4) Understand that relationships are a strategic issue: This will need to be acknowledged on a company-wide level. Relationships can be existential and this message needs to be elevated to Board level
(5) ‘Wargame’: When multiple organisations respond together, matters can tend to become complex. You wouldn’t dream of entering a team into a football tournament where the first time the players meet is on the pitch. You should therefore learn how each other responds to disruption by ‘wargaming’ together before you have to do it for real
Weathering the storm
Thanks to social media and the connected nature of our world, there’s no such thing as an ‘isolated incident’ anymore. While in the past organisations strove to contain incidents, this approach doesn’t cut it any longer.
Your organisation, and all members of the ‘commercial web’ within which you reside, have a vested interest in ensuring every other member succeeds. A truly resilient organisation will invest in building strong relationships ‘while the sun shines’ so they they can then draw on goodwill when it rains.
Dr Sandra Bell is Head of Resilience at Sungard Availability Services