Supply Chain Resilience – how deep do you go?

Even before COVID-19 focused your attention on your supply chain, you considered how disruptions of a supplier may have caused a disruption to you. This is basic risk management.

Of course, you have had robust conversations with your primary suppliers and there is a clause in each contract to assure the continuity of service to you. Perhaps you have even undertaken joint planning and testing to validate those arrangements. After all, that supplier is critical to ensure your customers’ service expectations are met.

Today you may be thinking about adjusting your “Just In Time” approach to increase the volume of inventory you hold. Perhaps you have even considered moving to a “Just In Case” approach to stock. What is the right answer?

There are a number of factors that influence the answer.

Consider this simple case study:

Reach into your pocket or wallet and pull out a credit card. That 85mm long, 53mm wide and 1mm thick piece of plastic we tap, swipe and dip onto various devices to pay for our many and varied purchases.

Let us assume your card provider (I will say ‘bank’ for clarity) offers a digitally-enabled self-service function on its app. You log onto the app, click on ‘Request replacement card’ and receive a ‘Request confirmed – your card should arrive in the mail in 5-7 working days’ message. In 5-7 days the card arrives in your mail box.  Simple.

Have you ever thought about what goes into the ‘magic’ between the digital acknowledgement of your card replacement request and the arrival of your shiny new piece of plastic? Neither had I until I was responsible for delivery of over 1 million cards annually to a major Australian bank’s customers. At that time they had over 300 distinct card designs?

Obviously to get the request from your device through your bank’s app there are several technology interfaces. Then the request goes into the core system and the credit card specific system. Your bank then batches a daily (perhaps even multiple daily) output file to send to their card fulfillment provider.

Already we have a network of suppliers. Let’s ignore the technology hardware and software providers for the moment and focus on the supplier who will emboss the card, activate the EMV chip, attach it to a letter, fold the letter, insert the letter into an envelope and lodge that envelope in the mail. Apologies….I’m getting ahead of myself but please remember that detail.

The card fulfillment provider probably should be a Tier 1 supplier. After all, if that supplier is disrupted, some customers of the bank will soon be affected by a disruption to the card fulfillment provider.

Let us consider the card and its manufacture process. What are the components and from where are they sourced? First let me give you a simplified and basic view of the card manufacturing process.

Think of the card as a plastic and ink sandwich. The card front (obverse) and card back (reverse) of the card are printed on the base plastic stock using, depending on the design, a 4 colour, CMYK offset press for basic colours and/or screen press for metallics. Once printed, the ‘sandwich’, comprising obverse clear laminate, card observe, card reverse, magnetic stripe, and reverse clear laminate, is placed into a laminating machine where heat and pressure create the blank. 40-60 blanks are generally present on a sheet and then punched out of that sheet using a punch and die machine.

Once punched out, the individual cards are fitted with the signature panel and security hologram. After a quality check, the cards are fitted with their smart chip. Each card is milled out and the EMV chip glued in place.

Completed blank cards are then gathered and ready to be provided as a completed order to the Tier 1 supplier.

Questions:

1. Does the card fulfillment provider also manufacture the blank stock? If not, then the card manufacturer is a supplier to the card fulfillment provider and, consequently, a Tier 2 supplier to the bank.

2. What are “Just In Time” stock alert levels agreed between the bank and the card fulfillment provider?

3. Is the card manufacturer located in the same country as the card fulfillment provider?

Consider the card manufacturer’s suppliers.

The items marked with an asterisk (*) are controlled items. Prior to placing an order, the manufacturer must obtain permission from the relevant card scheme. 

So, the suppliers to your Tier 2 supplier are Tier 3. What is not considered here is the plant, equipment, and people the card manufacturer relies upon in their production facility.

What is the most critical component? Dare we suggest that all components are important?  The question for the bank is how deeply and diligently their Tier 1 suppliers collaborate to assess the resilience of the Tier 2 and Tier 3 supplies. Looking at this example, the EMV chip is the component with the greatest lead time from, potentially, a single provider. I would recommend that the bank deliberately considers potential disruptors to that EMV chip provider. In this example a prudent risk manager in the bank might maintain and regularly update their situational awareness regarding chip supply and actively seek early warning of potential disruption.

Earlier in this article I asked you to remember some of the steps involved in making the magic happen. While I concentrated predominantly on the manufacture of blank card stock, the envelope you receive containing your shiny new card is a fulfilment pack. All of the components of that pack including card, letter, mandatory compliance brochures, activation sticker and envelope all had to be sourced from different suppliers. Before Australia Post could deposit your pack in your mailbox, someone had to collect your completed card and transport it to a mail sorting centre for lodgement.

And, again, I have not touched on the various technology employed to move, treat, and manage the data necessary to manage your transaction. The same principles apply to determine which tier of supplier requires diligent examination and assurance.

What you might consider doing is:

• Examine your supply chain from your customer all the way back to raw material

• Deliberately assess the components of your product and potential disruptions to suppliers of those components

• Decide where you will apply enhanced diligence to gain assurance that your supply chain is resistant to disruption

• Actively test that your supply chain can withstand disruption

Perhaps in reading this you thought “too easy – make the decision have at least one year of stock of blank cards at the Tier 1 card fulfillment provider.”

Of course, you can do that if you have the desire and budget, and your Tier 1 has the storage capacity.

However, what happens if a catastrophic event occurs at that facility and that bulk stock is either destroyed or unsalvageable? What if the Tier 1 ceases operations and you find that your step-in rights and/or right of entry contract clauses are unenforceable?

Sound like something you need to work on?  Tigertail has a team of experts that can work with you to identify and manage sources of disruption.

Protecting your people, operations, assets, and reputation is paramount in a crisis or emergency. With more than 150 years of combined experience we cover everything – from prevention and preparedness to response and recovery. The Tigertail team includes Crisis and Emergency Management Leaders, Business Continuity Specialists, Risk Management Advisors, Planners, and Trainers to equip your organisation with the skills to confidently and effectively manage risk, crisis, and emergencies.

Author: Craig Moroz

W: www.tigertail.com.au   T: +61 2 8097 1900 E: craig.moroz@tigertail.com.au

TIGERTAIL AUSTRALIA: CONFIDENCE / CLARITY / CONTINUITY

Pandemic Preparedness: Black and Grey Swans

“The COVID-19 pandemic is unprecedented. This global crisis was completely unforeseen. It is a true Black Swan event. We could not have prepared for this crisis.”

While we put quotation marks around the remarks above - they are not attributable to a single person. Rather, they are a collection of sentiments heard in the media, online and in the streets.

We will firstly debunk the remarks, secondly provide an example of how a company with imagination and foresight actually, considered such a crisis in October 2019, and finally - ask you to consider an important question.

Unprecedented:

Although the impact of Covid-19 is unprecedented in our time, the fact that this pandemic has occurred should not be an unexpected shock unless we ignore hundreds of years of records of diseases such as the  Bubonic Plague, Polio, Smallpox, HIV/AIDS, and Influenza. Ironically, some commentators refer to the occurrence of this most recent pandemic (COVID-19/SARS-nCoV-2/HCoV-19) as ‘unprecedented’ while at the same time comparing it to the 1918 influenza pandemic. Pandemics have occurred before, so as such, are not unprecedented.

Unforeseen:

Even with respect only to epidemiology; we can consider the point above and recall quite recent responses to Bovine spongiform encephalopathy (aka ‘Mad Cow Disease), the 2002-2004 SARS-nCoV-1 (or SARS) epidemic and 2009-2010 Pandemic H1N1/09 Influenza (aka “Swine Flu”), and the ongoing concerns of H5N1 Avian Influenza, MERS-CoV.

Perhaps those quoted as referring to this pandemic as being unprecedented refer to the economic and societal effects of this pandemic, its’ global reach as well as to the tragic death figures

In anticipation of a future pandemic, Australia and New Zealand’s governments had a pandemic plan which included a whole of government response. New Zealand’s plan also considered industry participation and described work streams including health, economics, food, and transport. No doubt the government will review and update their plan as they consider the effectiveness of it in response to the current situation.

Black Swan:

By definition, a so-called ‘Black Swan’ event is one that is completely unexpected and unforeseen.

Some in emergency, crisis and business continuity management fields have started using the term ‘Grey Swan’. The motivations and expected benefits behind the creation of such a descriptor are not known. Given human history and the prevalence of disease, a global pandemic is likely to occur relatively frequently.

How can this COVID-19 pandemic be correctly considered to be a true ‘Black Swan’ event when many Governments, including Australia’s, have been undertaking some planning and creating regulations at least since the SARS pandemic?  Some business continuity practitioners, now using the term ‘Grey Swan’, have been discussing pandemics since before Swine Flu.

 A more correct statement:

COVID-19 is the latest pandemic which was reasonably foreseeable and amenable to pre-planning. Many governments and corporations, nevertheless, appear to have been caught unprepared or underprepared. They are now responding in real time to that which they previously avoided examining theoretically - either deliberately or through lack of knowledge.

The example:

Our company - Tigertail Australia created an exercise for the Executive Team of a financial services organisation of around 4000 staff across Australia and New Zealand. When other organisations were focused on data security and cyber breach related crisis exercises, this organisation decided to evaluate and test its pandemic plan. When we queried the theme we were informed that the CEO thought it appropriate.

Tigertail’s exercise was conducted in Australia during October 2019 and in New Zealand during November 2019. Corrective actions agreed with the CEO and Executive Team were timed for completion in January 2020. By early February 2020, that organisation had addressed areas to sustain, improve or fix issues identified through the exercise. Importantly, in response, the organisation enhanced its technology to enable all 4000 staff to work from home.

The initial scenario phase of the exercise considered:

• Staff who had visited workplaces, customers’ businesses and trade shows while infected, but still asymptomatic, with a highly infectious disease acquired during a recent overseas study tour.

• Involvement of various State (NSW and VIC) and National (NZ) health authorities

The assembled crisis management team (CMT) focused on these primary elements:

• Immediate staff safety

• Immediate customer safety

• Reputation

• Continuity of business

In the first phase a group of ‘Primary’ CMT members participated, and an ‘Alternate’ group observed.

The exercise was halted and the CMT was split into two teams. Each team had a mix of Primary and Alternate members. The exercise scenario was ‘fast forwarded’ by six months – the infectious disease had now become a pandemic. Despite their best efforts, the impact of the pandemic on their staff aligned to the wider community experience.

In the subsequent second phase, the two CMTs operated concurrently. Neither was permitted to speak with the other. That constraint was explained as “Either they are sick or have succumbed to the pandemic”.

The scenario had been developed to reflect:

• A pandemic with a significant infection rate, disease reproduction rate and case fatality rate

• Significant stock market index falls and loss of value

• A double-notch decrease in the country’s credit rating

• Potential of a decrease of the organisation’s credit rating

• Significant stress on customer’s borrowings and increasing applications for relief under hardship rules

• Significant stress on customers’ primary industries

• A class action from the customers whose businesses had been disrupted at the outset of the exercise by the organisation’s infected staff

• Staff entitlements to leave dwindling rapidly and some exhausted

In the debrief we facilitated the whole CMT identified that they had:

• Learned that health and well-being of their staff is one stream of many in response to a pandemic

• Noted that using data from their Business Continuity Management System assisted decision making regarding the prioritisation of resources

• Seen the benefit of creating work streams to develop and manage short, medium, and long-term responses for staff, customers, community, regulators, and reputation

• Noted that creating work streams offered time for the Executive Team to consider the strategic issues rather than becoming immersed in the operational response

• Identified that while a pandemic response should become an important item on the agenda care should be taken to ensure that is not the entire agenda

That debrief was robust and the Chief Executive Officer and Chief Operating Officer overtly sponsored the agreed actions. When Tigertail met with the organisation again in February 2020 it was clear that the knowledge gained in October and November 2019 was driving informed questions focusing on what they may have missed.

The Question:

What are you going to do to ensure that you, your CEO, and your organisation are match-fit and crisis-ready?

Imagine being the CEO above; prepared and able, in February 2020, to brief your Board, industry peers, customers, staff, and regulators on pandemic preparations that had commenced in October 2019 – rather than telling them that “the crisis was completely unforeseen - a true Black Swan event – for which we are unprepared.”

Working with Tigertail would better enable your CEO to be able to state that:

“Yes [X Crisis] is unprecedented. However, through our ongoing diligence we have foreseen something like this happening and what was reasonably foreseeable was amenable to deliberate planning and preparedness. Of course, some of our plans will need to change. We are, however, ready to respond.”

Protecting your people, operations, assets, and reputation is paramount in a crisis or emergency. Tigertail Australia has the background and experience to equip your organisation with the skills to confidently and effectively manage risk, crisis, and emergencies. The Tigertail team has more than 150 years of combined experience. We cover everything, from prevention and preparedness to response and recovery. The team includes Crisis and Emergency Management Leaders, Business Continuity Specialists, Risk Management Advisors, Planners, and Trainers.

Author: Craig Moroz, Senior Associate, Tigertail Australia

W: www.tigertail.com.au   T: +61 (0)408 481 931 E: answers@tigertail.com.au

 TIGERTAIL AUSTRALIA: CONFIDENCE / CLARITY / CONTINUITY

COVID Planning Guidance

COVID is simply the most serious organisational threat in living memory. We are all adjusting to a rapidly changing world.

To give your organisation the best chance, we recommend:

1) Establish a COVID-19 Taskforce within your organisation, led by an executive team member

2) Support the Taskforce with a structure based on your crisis management team (CMT)

3) Establish work streams reporting to the Taskforce, with members from across the organisation. Consider:

a) Customer and stakeholder engagement

b) Workforce protection and support

c) Supply chain stabilisation

d) Service delivery – what can we deliver, when and to what quality?

e) Financial (particularly modelling future scenarios to consider the societal impacts over time)

4) Consider an Opportunity work stream to:

a) explore how you can change service delivery, streamline processes, work differently

b) note what laws and regulations are relaxed or implemented during the pandemic period that may become a focus for you to lobby governments and/or regulators as recovery begins

c) note changes to policy/process/procedures during the pandemic that may offer efficiencies when (eventually) we are back to BAU or operating in the so-called “new normal”

Each workstream should seek, in a structured way, to discover, assess and address or accept points of failure (people, process, premises, technology) that put the company at risk.

Encourage staff at all levels to highlight possible points of failure and foster innovative, flexible thinking to address them.

Remember that while the pandemic is front of mind, other incidents should be expected that may compound the problem – don’t take your eye off the normal continuity challenges.

Now is the time to:

• establish delegated authorities for CEO, Executive Team and roles that are vital to your overall governance

• ensure that those tasked with building the response have the authority and resources to focus on that mission – the entity’s survival depends upon it

• be deliberate in setting a sustainable tempo – this isn’t going away any time soon

• actively manage fatigue – cross-train at least two people for each role in the strategic response

• keep your people informed – and be kind

• expect that the entity emerging from the crisis will be different from the one that entered

Keep washing your hands, stay at home wherever possible and look after each other.

Don’t know where to start? Tigertail can help you navigate the complexities and weather the storm.
Contact us at answers@tigertail.com.au