08 May 2003
The Sars outbreak underlines why purchasers should make sure they have a back-up plan for emergencies, says David Arminas
The management of a medical supplies purchasing group in Toronto can congratulate themselves for averting a breakdown of their supply chain during the recent outbreak of the deadly severe acute respiratory syndrome (Sars) virus.
Emergency Medical Services (EMS) acted as soon as indications appeared that there was an unknown disease spreading exceptionally fast.
EMS anticipated the run on surgical masks, gowns and gloves and acted with its clients - the police, fire and other emergency services - to agree a strategy that would see most orders coming to EMS. In turn, it would deal with all suppliers of the equipment, forestalling a massive run on demand with prices skyrocketing because of shortages.
The average person in the UK saw the spread of Sars as too remote and forever isolated - most of the outbreaks have been in China, Hong Kong, Vietnam, Thailand and Indonesia - to be of major concern.
But UK purchasers would be mistaken for believing that it is at all remote. As events unfold in the media, they are no doubt asking themselves not only what chance is there of it arriving, but how it could affect them here and now.
The basic issue is about risk management. Globalisation means that the "here" now includes every corner of the globe where a company or its supply chain operates. No supply chain is an island.
Purchasers must be able to secure alternative supplies if there is a major disruption to their supply chain, including logistics, manufacturing and all support services.
For example, more than half of the world's silicon chips come from Asia, where more than 85 per cent of personal computers are assembled. Disruption there could mean delivery problems to clients in Europe, and they in turn would lose service contracts.
Sports shoe maker Nike has reportedly made plans to shift production out of Asia, probably to Latin America, should absenteeism from work affect suppliers.
Similarly, EMS's search in the US for alternative suppliers helped it to meet demand during the Sars crisis.
There is also an issue of responsibility. Can a purchaser or a purchasing consortium be acting responsibly if it waits for clients to flag up an impending major problem, be it a natural disaster, disease or a general shift in marketplace requirements?
If purchasers wish to be considered proactive, they have to head off supply chain disasters. Only purchasers have the ability to see the big picture of their supply chain and predict where problems might arise.Justify worries
This means purchasers may appear from time to time to their colleagues in marketing, finance or sales as unduly worried. To counter this scepticism, purchasers must have their analysis of future disruptions carefully laid out so others take them seriously.
The repercussions for failing to manage risk properly are most acutely felt in the public sector, especially in healthcare. Sars should be a warning to those in the UK health industry that politics can thwart their best efforts at managing risk.
In China, the government was more than slow to acknowledge a crisis. It simply ignored it for several reasons: it could lose political face internationally, it could lose business, it could lose tourism.
In the end it lost all three, along with the government's health minister, because it failed to act swiftly early on.
Britain's foot and mouth crisis two years ago stands as an example of what is at stake. UK hauliers struggled to keep up with the gruesome task of hauling diseased carcasses off to pyres. The Freight Transport Association estimated that they lost
£5 million a week in revenue because of quarantined vehicles and having to decontaminate trucks.
Thankfully, government, farmers, hauliers and other industries got together afterwards to discuss better management of similar outbreaks. But in some cases, no matter how much planning is done by purchasers, emergencies and disasters of one kind or another may still wreak havoc on supply chains.
Purchasers know they must act responsibly, regardless of what others do. They have to stand up and warn of impending supply chain problems that could exacerbate the crisis for their company, the government or the general populace.
Sars should act as a warning that purchasers ignore risk management at their peril. The actions of Toronto's EMS should stand as an example of what can be accomplished if purchasers are involved early to help ward off a crisis.