Business Continuity and Suppliers – Take Nothing at Face Value

[vc_row][vc_column][vc_column_text]“Yes, we have a business continuity plan”. Every enterprise wants to hear this from its suppliers, especially the key suppliers.[/vc_column_text][vc_single_image image=”5441″ img_size=”full” alignment=”center” image_hovers=”false” lazy_loading=”true”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]If it is diligent in making its own BC plan, a company will check that other companies on which it depends have also taken precautions.

Unfortunately, that is often where the investigation stops.

It almost seems like companies are so relieved that they can “tick the box” for BC planning for their suppliers that they forget to find out whether the suppliers’ plans are either effective or relevant.

How much can such laxity cost companies? In one case, about US $1.7 billion.

The problem of taking supplier business continuity information at face value is compounded by unwillingness or inability to share that information.

A survey some years ago showed that 25% of executives in supplier organisations admitted that their organisations rarely shared such data with their customers.

The survey also showed that less than 40% of companies confirmed regularly sharing such information with suppliers, and almost 20% confirmed that no information was shared.

This leaves many companies in the dark as to whether their suppliers can ensure business continuity, or the priority they will receive among all the customers if supplies are affected or interrupted.

The classic case of the chips supplied by Philips to Nokia and Ericsson is worth revisiting for this aspect alone. In 2000, Philips informed both customers that a fire in its manufacturing site had interrupted the supply of the chips that were essential to both Nokia’s and Ericsson’s phone manufacturing operations.

Philips also estimated the delay before chips could be supplied again as usual to be one week. Ericsson accepted the estimate at face value. Nokia did some digging, found that the estimate was vastly over-optimistic, and rejigged its manufacturing to use other components from other sources. Meanwhile, Ericsson waited.

And waited. And waited, eventually posting a US $1.7 billion loss in its phone business for that year, largely due to the interruption of supplies of the vital chip. So, Q.E.D. and take nothing at face value when it comes to declarations by suppliers about their business continuity![/vc_column_text][/vc_column][/vc_row]