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6 September 2011 | Angeline Albert
From this year’s English riots to next year’s Olympic Games, supply chains are facing increasing pressures that purchasers need to be prepared for. Angeline Albert looks at what plans are under way.
Next year’s Olympic Games in London are less than a year away, but it appears purchasers are only just waking up to the potential that the event has to disrupt supply chains – whether they are involved or not.
As we reported last month, a study published by consultancy Deloitte that surveyed businesses across the UK found just 3 per cent expect no disruption as a result of the games. This was a dramatic fall compared to the 40 per cent who six months earlier didn’t think they would be affected.
The study also found just under a fifth thought there would be problems in the supply chain, but 58 per cent do not yet have a plan to address the challenges it might cause.
John Milne, from procurement consultancy Hampco, says the knock-on effects of the Games on businesses’ operations are inevitable. “With the 2012 Olympics, we fully expect that suppliers will be forced to pass on the inevitable surcharges that will result from increased surveillance at ports and airports,” he told SM.
In the London Borough of Hounslow, contingency planning officer Matt Innerd has been liaising with the heads of procurement at 33 separate councils to create a business continuity clause for all local government contracts in London. This clause requires suppliers to draw up plans in an effort to protect councils from any risks their operations may face.
“The Olympics will have a big impact on business continuity,” he says. “Anyone operating in and around London will have an issue. We are carrying out internal risk assessment on the Olympics and we are looking at alternative ways of working, including stockpiling resources prior to the Games.”
At Dixons Retail, the company is already well prepared to handle any potential operational challenges and marketing opportunities, according to retail support purchasing director Rob Douglas. “We are gearing up for the Games because it’s going to be a key time when we expect disruption. We already have extra capacity built into our plans. This includes sufficient capacity in store and in our home delivery fleet, and coping with any delivery challenges such as route diversions. We are appropriately sized to handle our peak period, which is Christmas. We are not expecting traffic to
peak during the Games like on Boxing Day.”
Even if you, as a buyer, do not feel the direct impact, your supply chain could. According to Cathy Humphries, UK country manager at supply chain software firm Inform, a big risk could arise if you are not a supplier’s customer of choice.
“We need to get people out of fire-fighting mode,” she says. “Companies with suppliers that
also supply goods and services for the Olympics may well end up in second place when it comes to that suppliers’ priorities.”
This can be mitigated through better control of inventory, which will also help to avoid over- or under-estimating demand for products.
“Companies that are going to take advantage of the Games – say with an Olympic branded product – could get the numbers wrong when it comes to purchasing because they may not have done an Olympics before,” she adds. “During the 2010 World Cup, demand for branded products fell off when England dropped out of the tournament. Suppliers should be flexible enough to ramp up supplies when necessary.”
But it is not just the disruption from the Olympics that is causing planning headaches for buyers devising contingency plans. There has been plenty of time to prepare for the event that has a fixed date and length. But unexpected events, such as the extreme weather at the beginning of the year or the recent civil unrest seen in UK cities last month, are more difficult to anticipate.
Helen Baker, head of procurement at the University of the West of England, believes many organisations must become better prepared for any form of disruption.
“Organisations are not ready for day-to-day unforeseen risks, never mind possible disruption caused by the impact of the Games. I’ve found a number of London businesses do not have business continuity plans. I am concerned about inadequate plans for any day of the week.”
She adds that some small suppliers had not thought about business continuity sufficiently. Following the riots, Baker’s team assessed the University’s pre-qualification process, with staff taking a closer look at supplier continuity plans.
Dave Alberts, sales director at consultancy Crimson & Co, says effective supply chain planning will get operations back up and running more quickly. How responsive the supply chain is can ultimately limit the effect events such as the riots have on a company’s profitability. But, he adds: “It remains to be seen whether the contingency planning model can accurately handle the issue of domestic anarchy these disturbances have produced.”
According to James Jaggard, head of supplier management at Atos, building relationships with vendors is the best way to minimise disruption.
“Our supply chain will not be negatively impacted by the Olympics. For Atos, it’s business as usual. Our methodology is to utilise as many of our existing long-term framework contracts and partnership agreements as possible, therefore eliminating significant supplier changes, which could translate into project delays and financial risk. What these suppliers can’t fulfil from a global perspective will then go through a tendering process to source locally.”
In the absence of similar flexible deals with vendors, Jaggard believes the place to begin when examining continuity is to identify strategic and technical suppliers, those which are business critical.
He says a clearly defined scope of requirements should also be established as early as possible, including what is needed and when it will be necessary in the event of an emergency. Then compare the capability and capacity of your existing suppliers against this assessment.
But, he says, understanding your own spend profile and supplier capability is just half the equation. Try also to understand the customers of your suppliers and how their behaviour – if they are increasing their reliance on that particular vendor – could impact your business: less access to key resources, for example.
“Any major growth in revenue, whether yours or other customers, has an impact on direct and indirect materials, services and operations. Remember to include an assessment of back office, project management and customer support – business critical areas that rarely get the appropriate attention and almost always get stressed with peaks and troughs.”
Other purchasers believe their major risk is future prices. According to Anthony Bowdidge, head of procurement at Weetabix, the emphasis on risk management is on commodity markets and how the price of wheat will affect the firm.
Strategies to counter rising prices suggested by purchasers include returning to the specification to redesign products from the bottom up, substituting materials for cheaper options and renegotiating future contracts.
Some buyers report their firms are putting a lot of work into business continuity and disaster recovery, but communicating this to the wider parts of the business remains an issue. Although no purchaser would go on the record, a number told SM they felt they had not been kept in the loop with regard to their organisation’s continuity plans, which were devised at the centre of the business and had yet to filter through.
Before disaster strikes, purchasers can prepare supply chains to lessen the impact of disruptive events.
• Organisations could extend lead times in advance with suppliers to factor in any potential issues. This includes updating IT systems to include new delivery times.
• Find alternative transport or distribution methods and routes where necessary to deliver goods and services to circumvent disruption. During the Olympics in London, there will be extra strain on transport routes in the capital, so offer staff alternative working arrangements.
• Assess the robustness of business continuity plans of the partners in your supply chain as well as those of your own organisation.
• Ensure you have back-up servers to protect IT services.
• During the fuel protests that led to shortages, journeys had to be prioritised or curtailed. Suppliers chose which clients to visit and support. A strong relationship could mean you don’t miss out.
• Avoid too much reliance on one particular, or a set of vendors.
• Find alternative sources for business-critical supplies that can be easily accessed.
• Back up payment operations and systems to make sure all your vendors continue to be paid regardless of the damage or threats to your business.