TIME TO RETHINK RISK
The pandemic was the disruption nobody was expecting. A year on and we’re still battling with the aftermath. Should we challenge the way we approach risk? Should we place more emphasis on resilience and less on cost? Professor Omera Khan shares her thoughts with Tom Holmes
A year ago, COVID-19 was little more than a murmur on the news. It was, for most of us, something that was happening in China. Few of us foresaw that it would become the defining global event of the new millennium. It’s disrupted the world on a scale usually only seen during war times and is a scenario few of us were prepared for.
12 months on and the murmur has become a cacophony. COVID-19 dominates news headlines, newspapers and blogs. More importantly it has dominated the thoughts and minds of scientists the world over to the extent that multiple vaccines are in global circulation. There’s light at the end of the tunnel.
For businesses, there will be analysis and reflection. Were they prepared enough? Would they be able to withstand a shock of similar size in the future? How will we do business now? All pertinent questions in need of urgent answers. For the supply chain, they’re particularly pressing. Disruption to shipping, to logistics and to distribution have been dovetailed by the collapse of suppliers, vendors and entire networks. It’s a grim picture that needs urgently addressing according to Professor Omera Khan.
The pandemic has changed the landscape for supply chain risk hasn’t it? Are we now going to see permanent changes to the way risk is assessed?
COVID-19 created unexpected shocks in the supply chain simply because the implications were global. Past disruptive events – for example 911 or the volcanic ash cloud – were localised. Surrounding air space and production were halted during those events. It was contained even though it was unexpected.
COVID-19 has disrupted everyone, and it has highlighted that supply chains are not resilient enough. Even those that have dealt with past disruptions were not robust enough. I think the measures in place aren’t strong enough moving forward. Planning for recession or the loss of a major supplier is one thing, but for a disruption where the entire supply lines are shut down is quite another.
But nobody foresaw what was coming
No they didn’t and how could they? But then again, that is the nature of planning for risk and building resilience. You plan for worst case scenarios. I think what businesses are realising now is that only making your focal company or tier one suppliers resilient isn’t enough –
especially if tier two suppliers go out of business. We need to take an end-to-end supply chain view.
And so I think that more businesses will understand the importance of that end-to-end view. They will recognise how important it is to develop resilience measures. And I think what businesses also need to wake up to is that there’s always been this drive in supply chains to be more efficient, to optimise process, but frankly that’s not enough if they can’t withstand shocks. So to answer your first question –
yes I do think we need to change the way we do risk, but whether that will happen is another question.
In my opinion, the emphasis on cost gets in the way of resilience – and that’s an endemic problem within most organisations isn’t it?
Cost has always been the key driver rather than responsiveness. And if we don’t have a responsive and resilient supply chain, we will collapse. Going forward, the implications of COVID will stay for a very long time to come. It’s not as simple as saying, ‘maybe this year is also going to be a bit bad but then the year after we will be okay.’ It’s unrealistic to think that we’ll return to the way we operated in 2019.
Businesses have to understand that their ways need to shift. There were signs of this pre- COVID – we were seeing better sustainability measures, embracing technology and businesses improving transparency. When we last spoke, I said that inertia to change was a major threat to supply chains. I stand by that and hope that the situation we are now in becomes a catalyst for real change, for building real resilience.
To that end, I would hope that most business have realised that they need to actually have lots of options. You need to have multiple sources of supplier, you’ve got to have a greater level of collaboration. You’ve really have to understand your supply chain partners.
Are we looking at an overhaul of how we do things? Of how we assess and react to risk?
Perhaps. I think the traditional operators of our supply chains may not be fit for purpose. That’s because they worked in a world where supply chains were more stable, and exposed to less volatility. We must recognise that supply chains are a lot more disruptive now. They’re a lot more turbulent and less certain. So we need the kind of people who can work in those kinds of environments. We need a mix of engineers and analysts, but also thinkers and designers and more creative people. We need a blend of these skills.
It comes back so often to a lack on willing to change though doesn’t it? Culture eats strategy for breakfast
as they say
I can’t change people’s mindsets. But that’s the point I’m making. They’ve worked in a certain way. I think the sad thing about all of this will be that we will continue to see many companies fold because they won’t react or change.
We will see legacy businesses, not new business, but very old business cease to trade. I hope they survive, of course,
but with old decision-making and a reluctance to understand that change is upon us, they may not.
The culture of workplaces are changing though, albeit slowly
I think as we see more digital natives enter the workforce and enter management positions, then we’ll see bigger and quicker changes. They’re attitudes are far more open and far more reflective of what the modern world needs. They’re very aware.
And in all of this I think it’s important to remember that it is through our supply chains that we can make a difference. The biggest wake up for now call should be that it is through our supply chains that we can make the biggest change in the world. After all, it’s how we decide to design and manufacture and assemble, and the global distribution of our products that fundamentally has a major impact of the pandemic and how we have started to come through it. Supply chains are powerful things, and they have the power to do a lot of good.