Lessons observed, or lessons learned?

Published: Monday, 06 July 2015 08:00

One of the great risks to business operations today comes from complex global supply chains. Do we actually learn from events and improve our practice, or simply observe and then cite the event as evidence to reinforce our existing practices?

It is not enough to add compliance check boxes to our tender and procurement documents that require our suppliers to develop contingency plans. We need to ensure that our organizations are capable of being adaptive and responsive when disrupted - and that we have a culture that promotes these attributes.

Four years ago many industries were rocked by the Fukushima earthquake and nuclear reactor disaster. I wrote an article in May 2011, inspired by a story published by The New York Times (‘Piecing Together a Supply Chain’). It is a case study describing General Motors' response to the disaster in Japan and consequent disruption to GM's operations. I took away these three important messages that help explain the concept of resilience; and why it encompasses much more than the practice of business continuity. Given the current upsurge in interest in resilience in the business continuity profession, these lessons are well worth reiterating:

The limited applicability of plans and planning

Yes, you should do some planning and produce some plans, but they are not the primary drivers of resilience. The point that needs to be understood here is that plans can only take you so far. They never foresee all possible eventualities, and too often they do not anticipate the extreme consequences.

GM reported that they regularly created contingency plans for supply chain disruptions. Every major company with such a complex supply chain would do the same. However the article quotes a GM vice chairman as saying their plans did not address anything "of this kind of scale or scope".

This is normal, and if you apply cost/benefit to your preparedness, then it would surely be acceptable practice.

Within four days of the earthquake, GM had established three specific purpose crisis rooms, and assembled hundreds of staff to address the problems. They probably used their plans for this part. But they were confronted with a problem they had not previously considered.

The critical role of adaptive capacity

This is the capability that has to kick in when you exceed the planning threshold.

GM did not just have to address the impact to their suppliers, but also to some of the second and third tier below these suppliers. In some cases the problem did not become known until much later as these lower level impacts were understood.

Because they took a holistic view, directed by senior executives, GM was able to shut down operations at one plant and divert components to other plants producing different (higher-margin) vehicles. You cannot achieve that with bottom up planning and execution.

The ability to adapt here also means we can think outside the box of conventional wisdom.

Rather than the simplistic solution of asserting they can source components from another supplier, GM spent a great deal of time and effort helping to get their suppliers (and their suppliers' supply chains) operational again. Some examples include;

Importance of leadership and culture as enablers of resilience

GM is not a company that one would normally expect to be the poster boy for resilience. It was not that long ago that the company was in bankruptcy.

Fortunately the company had undergone a major upheaval to get out of bankruptcy. Making changes to the culture has been critical.

A new CEO was part of the cultural change, and he tried to break up the traditional 'command and control' culture that dogged GM; empowering decision making at the appropriate levels. The change had encouraged new management thinking and changed the mindset by promoting a number of junior and female executives.

Would GM have been able to cope so effectively with the crisis under their previous management and culture? We will never know, but I would doubt it.

The case study also contains another aspect of culture that is important to understand. We need to recognise the differences that apply across national cultures rather than assume everyone thinks the same way we do.

"The culture of the Japanese is they don't want you to come into their home or their workplace unless things are running well" said the manager of the GM Tactical Operations Team who spent three weeks in Japan visiting up to 10 suppliers each day.

If the conventional wisdom of supply chain agility is that you penalise non-performing suppliers and move your business elsewhere, then you could expect some of this reaction in any country.

Conclusion

The critical lesson from the above is that resilience goes beyond BCM - it is not about plans and procedures. Here are two key questions for you to take away and ponder:

What is your company doing to promote responsiveness and adaptation?

Do you rehearse and exercise your adaptive capacity?

The author

Ken Simpson is an Australia-based Resilience and Continuity Coach. Contact Ken at kds@thevrgroup.net