The age of the crisis is upon us, and the supply chain is woefully unprepared to deal with it. This was the stark message to the industry at the Business Continuity Planning 4 Retailers Conference last month.
Although over the past decade retailers have had some form of business continuity plan (BCP) in place, BCPs of manufacturers and distributors are primitive, if they exist at all, according to Ron Miller at Sungard, the disaster recovery company.
“There has been so much focus on driving down costs and upping margins that supply chain continuity has been met with apathy,” he says. “We now face fuel crises, energy shortfalls and a cold winter. Our last cold winter was in 1985 and supply chain networks are much more vulnerable now.”
Business continuity has historically represented a grudge spend for many companies. While retailers have experienced crises for many years (Tesco has been the victim of fires, bombings, kidnap and a well-publicised tunnel collapse at its Gerrards Cross building site), an ‘it won’t happen to us’ mentality has prevailed upstream in the supply chain.
But incidents do occur. High profile fires (Hilliers of Plymouth), floods (UB in Carlisle), strikes (GMB) and product recalls (Sudan 1), have all taken their toll this year and retailers are starting to demand action.
Sainsbury is reviewing the BCPs of 200 of its most critical suppliers of goods for resale and 35 of its service suppliers. Steve Mellish, business continuity manager at Sainsbury, says: “The key is that we are establishing communications, particularly with SMEs, which we acknowledged as being an area in which work needs to be done.”
Although he denies a good BCP will be a condition to working with
Sainsbury, he admits that where BCPs are lacking, help will be given to introduce or improve them.
Tesco has a similar approach. A spokesperson says: “We encourage all suppliers to run best practice business continuity plans. We have identified key suppliers in terms of services and reviewed their business continuity arrangements.”
The problem for suppliers is crises are now planned-for events. Incidents such as the July 7 bombings have thrown business continuity into the spotlight. Dr Helen Peck, senior lecturer on supply chain risk at Cranfield University, says: “People now expect incidents; they are no longer hypothetical extremes, but I think there is still real risk around the supply chain.”
Peck, who has been conducting research for Defra on resilience in the food chain, thinks a major crisis such as a city-wide power cut, not beyond the realms of belief when you consider the chaos in North America in 2003 after several cities suffered blackouts, would be particularly damaging. “The better the supply chain, the more just-in-time it becomes, hence the more reliant on suppliers and distributors. So if rolling power cuts happen and that distributor can’t deliver, you’re going to have a problem.”
Convincing suppliers and distributors to adopt costly BCPs will be tricky. While retailers have always had to face risks in several areas, those upstream have rarely experienced them and spending money that may never be used will not be popular.
Plus, those demanding it may not have comprehensive BCPs of their own. Peck says: “A lot of retailers are only planning for single points of failure, saying if they close a store, they can’t afford to close their HQ too.”
Given most crises are quiet catastrophes such as IT failures which can affect entire businesses (research has shown on average, UK businesses each suffer 235 hours of downtime a year due to IT failure), this is a risky approach. Still, most retailers appear to be confident their BCPs are adequate. Tom Buchanan, Tesco’s loss prevention officer, comments on Tesco’s procedure on July 7: “We set up a crisis control centre within 30 minutes of the first bomb being reported. We were up trading by 7 the next morning.”
A business continuity forum for retailers has been set up by Trevor Partridge, Marks and Spencer’s head of business continuity. “For too long, each of us has worked in splendid isolation putting together what we think are worthwhile plans in the event of a situation. We aim to bring an element of census and support to the process,” he says.
Retailers are invited to tour M&S’s crisis management centre at Stockley Park in February to share views on best practice.
As yet there is nothing similar to convince suppliers that business continuity is more than an insurance premium-reducing gimmick. Pressure from retailers will inevitably change this.