No excuse for supply chain slip-up

24 May 2010
They’ve done it now. President Obama, no less, wants to launch a further enquiry into the Gulf of Mexico oil spill disaster. As patches of crude oil start being seen on the US mainland, far away from the original leak, sentiment in the US is hardening against the companies involved in the environmental catastrophe. These companies – BP, Transocean and Halliburton – had hardly distinguished themselves already with their performance on Capitol Hill in Washington during recent congressional hearings. The combined finger-pointing of all three companies – “It was their fault!” “No, it was their fault!” – was less than endearing. Whether it was the energy company looking for oil (BP), the operators of the rig (Transocean), or the maintenance teams (Halliburton), all three seem to have let themselves down. It is singularly unimpressive, after all that has been written and said about project and risk management, that grown-up businesses can still find themselves bickering over their responsibilities in this way. They ought to know better. This is familiar territory to purchasers involved in complex supply chains. Of course, responsibilities overlap, especially if you are dealing with suppliers around the world. But the crucial question is: how do you prepare for a situation where things go wrong, where business as usual is interrupted? Will all sides have the maturity and calmness to settle their differences without getting the (expensive) lawyers involved? Business is competitive. That’s the way of the world. This is the underlying tension behind the tough negotiations over the terms and conditions of contracts. But, of course, it is these tensions, between BP, Transocean and Halliburton, that are now being exposed in the harsh glare of publicity in the US. It does not sound so clever for BP to point at the rig operator and criticise its working practices. It hired Transocean to do the work for it. The rates agreed will have implied a certain level of service. BP must have known – or should have known – what it was getting into. Likewise, the terms hammered out with Halliburton will have bought an agreed amount of maintenance – no more, no less. This may all sound like wisdom after the event. But there have been enough of these disasters over the years, surely, for businesses to understand that they have to be prepared for them. What is particularly challenging in the early 21st century, though, is the interconnectedness of global business. Managing in this environment demands new levels of sophistication. No wonder things sometimes go wrong. As Steve Fowler, chief executive of the Institute of Risk Management, told the FT recently: “All organisations need a robust, enterprise-wide risk management process that explicitly covers key suppliers.” If that sounds too much like hard work, tough. The way to avoid getting hauled into the courtroom to explain the latest corporate disaster is to have this kind of robust risk management in place. No insurance policy can protect you against things going wrong. But taking responsibility for those parts of your supply chain that truly are your responsibility will help. That way, when the crude oil (or any other substance) hits the fan, you can feel confident that the worst consequences can be avoided.
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