By Sangeeta Anand
Several natural disasters, such as the 1995 earthquake in Japan, the 2004 Asian tsunami, Hurricane Katrina in New Orleans in 2005 and New Zealand’s Edgecumbe earthquake in 1987, suggest that we simply underestimate the degree of damage that disasters can cause by disrupting businesses. That is why risk management forms an important link between an organisation and its customers and suppliers. Preparing for such unforeseen circumstances not only decreases dependency, but also generates mutual synergy and harmony among the entire supply chain.
 Many unpredictable risks like terrorism and natural disasters, property-related risks such as fire, power blackouts and machinery breakdown, environmental issues, more demanding customers, and legislation and compliance have compelled New Zealand organisations to upgrade their abilities to cope with contingencies and keep businesses operational to avoid financial losses. Uncertainties in the supply chain industry are also accentuated by outsourcing, globalisation, e-commerce, and business disruptions.
With operations becoming global, many companies also have to deal with the risks of political and currency risks, cyber attacks and communication lapses. Globalisation has increased supply chain risk and shifted the supply chain paradigm; but it has also provided opportunities to manage this risk. With safer locations, healthy site facilities and educated workers available offshore, outsourcing of supply chain tasks will help minimise supply chain risk and provide options to choose alternate suppliers.
Global management
The question is how organisations can manage the supply chain extending from New Zealand, Singapore to Dubai, or from the US, China, Vietnam to New Zealand. In New Zealand, companies are utilising new technology to allow greater flexibility in work arrangements, ranging from off-site data centres and work areas, to the use of more effective mobile devices and remote-access technology to cope with extended supply chains.
In addition, companies are focusing on getting the parts of the supply chain they do have significant influence over to operate more robustly and efficiently. This means seeking out ways to achieve better planning and execution of their supply chain activities in collaboration with their customers and suppliers. This in itself will reduce the risk of supply chain disruptions by improving visibility, responsiveness, resilience and efficiency.
Also, New Zealand risk managers are exposed to a certain degree to the bleak economic environment, and there are only limited short-term options for managing risks such as energy and raw material price shocks and currency fluctuations.
Holistic management
This environment therefore requires effective risk management, which may include a more holistic view of supply chain costs that factor in risk costs. Companies in New Zealand may consider putting in place standard risk measures and assessments, monitoring processes, and contingency plans, balancing cost, performance and risk when preparing their sourcing strategy, developing and collaborating with suppliers and customers to detect and mitigate risks.
Says Chris Wilson, senior supply chain consultant at Xelocity: “In the New Zealand supply chain industry, energy prices and economic uncertainty are likely to dominate executives’ minds in the short term. Another risk that is starting to appear is the risk of dramatic climate change. The effects could come in the form of significant regulatory changes or even natural disaster events. Supply chain sustainability is fast becoming a top agenda item. However, we shouldn’t discount the direct risks we tend to bring upon ourselves by neglecting fundamental planning, quality management and supplier management processes.”
Xelocity suggests that organisations implement a Supply Chain Excellence (SCE) programme based on the Supply Chain Council’s SCOR (Supply Chain Operations Reference) model, which was recently revised to include expanded risk management capabilities and address supply chain sustainability efforts. In addition, they have also adopted the Green SCOR methodology to address issues surrounding environment sustainability for their customers’ businesses.
Robust continuity plans
In a gloomy and uncertain economic environment, a good corporate image in a country can reduce problems. Unexpected positive or negative events can affect a firm’s image. For organisations to maintain a good corporate image, it is important that their risk management procedures and business continuity plans are robust and soundproof.
Unfortunately, negative incidents are inclined to have a greater memory, such as Nestlé’s negative experience with baby formula in the Third World. That event will continue to affect the company for many years to come.
On the other hand, quick service recovery by Johnson & Johnson of its product Tylenol credited it with a reputation as a socially responsible organisation. Johnson & Johnson was able to maintain its corporate reputation by a nationwide recall of an estimated 31 million bottles of Tylenol, which were in circulation, with a retail value of over US$100 million. At that stage, the market share of Tylenol dropped from 35 percent to 8 percent, but due to its aggressive risk management procedures, it resurfaced in less than a year.
Since supply chain risk management is a link between the organisation and its partners, a proactive approach in controlling risks throughout the supply chain in the most effective and efficient manner is the best strategy moving forward. The sooner New Zealand companies inculcate this in their mandates, the faster they will reap the rewards.
Sangeeta Anand is a freelance writer. She can be contacted at sanand@theglobalindian.co.nz
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