Bouncing back from a terrible blow

19 September 2001
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20 September 2001

Companies could be back in business faster than many think after last week's shocking events in the US, says David Arminas

The world was stunned after last week's attacks that gutted the US's financial centre in New York and pounded the country's defence establishment, the Pentagon. It was days before anyone could even start to take stock of the situation and the omens for a quick recovery were not good.

The nation's top purchasing organisation, the National Association of Purchasing Management, has warned of longer and more arduous security processes for material and people, adding to supply chain costs.

All this comes at a time when the US economy has been on the verge of a recession, and such calamitous affairs as the terrorist attacks could drive it down for sure. That, in turn, means Europe could follow suit, according to UK analysts.

Even before the attacks, various US economic sectors said they were in a recession even if the country as a whole was not. Airlines, for one, were dealing with a sharp fall in business travel and competition has been intensifying for the high-paying corporate flyer. Any conditions to worsen their financial position could see prices rise for business seats as airlines cope with a mounting loss of income. Immediately after the attacks, the US Federal Aviation Authority grounded all air traffic, amounting up to 40,000 daily flights.

The International Air Transport Association (IATA) expects a price war to erupt as total losses from the disruption are calculated to be around £7 billion. Reduced schedules and route cancellations are not ruled out as planes could be flying half-empty, according analysts Dresdner Kleinwort Wasserstein.

Logistics companies, such as FedEx and UPS, appear to have coped with the two-day blanket ban on air traffic by shifting as much cargo as possible on to trucks. Purchasers and operations directors held their breath as just-in-time (JIT) manufacturing schedules teetered on the brink of collapse. Ford closed all its offices and factories, in some cases blaming a lack of direct supplies.

But it may not be as bad as initially thought for America's supply chains. Many lessons have been learnt and supply chains are likely, according to some experts, to prove resilient.

No move likely

It seems unlikely that there will be a knee-jerk reaction away from JIT. In fact, supply chain professionals seem certain to show that the relationships they have developed can meet the challenge of major earth-shattering events. Modern supply networks are more like the Internet. Packages of electronic data flying around IT networks at the speed of light find a way through somehow: if one route is unavailable, they find another.

For the past 10 years or so, companies have been moving away from having most of their value in assets to having value based in information. Databases within IT systems have made this infinitely possible. Outsourced IT, including duplication of documents, means that companies can quickly recuperate from the loss or partial destruction of a head office.

Similarly, an intricate supply network means that losing the main factory does not necessarily mean the loss of all manufacturing capability. First and second-tier suppliers will still operate. If Ford's headquarters in the US were destroyed, could not Ford Europe take on the role of headquarters at least until the dust settled on whatever catastrophe occurred in the US?

Supply chain professionals have created the devolved company - a new species with several heads. This advances the argument for a decentralised company. Purchasers have often made decisions about engaging suppliers based on how much information will be available to all parties, such as internal buying patterns and supplier processes. Information is power and supply chain professionals have taken this to heart.

Europe's experience in recovering from such events will be invaluable. Some US firms may have to temporarily drain their international resources, shifting business to bases in London and Singapore, for example. And UK purchasing heads in financial services companies whose offices were destroyed in the attacks will be the first to see how supply chains can bounce back.

SMsep2001

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