The Importance of a Business Continuity Plan and Supply Chain Security
In today’s economy, companies face intense global competition, and there is often only a thin margin separating brilliant companies from failing ones. The firms that succeed follow standards and practices that enable them to quickly respond to the market and emerging risks. Business continuity, defined as the ability to deliver products and services after a disruption, is a necessary competency for modern global corporations. Risk management practices allow firms to identify risks and develop mitigation and emergency response plans. For example, if a random event disrupted a company’s supply chain, an effective business continuity plan would minimize losses by providing alternatives to the broken supply chain. In other words, a business continuity plan and management of such prevents a single point of failure from crippling a company.
Nokia and Ericsson: A Case Study in Supply Chain Security and Business Continuity
A famous example of poor business continuity and supply chain security / risk management occurred sixteen years ago. In March of 2000, a bolt of lightning struck a power line resulting in a small fire at the Philips microchip plant in Albuquerque, New Mexico. The fire was quickly contained, but the smoke, water, and heat ruined millions of chips destined for cellular phones. The two largest customers of the Philips plant, Ericsson and Nokia, responded to this event very differently, leading to dramatic consequences.
After the fire, Nokia recognized its poor supply chain security early on, thanks to effective in-house practices already in place. The firm also quickly engaged Philips to analyze the extent of the problem. Based on its analysis, Nokia worked closely with Philips to source chips from other plants, retooled its phones to use different chips, and sourced chips from two other suppliers. By the third quarter of 2000, Nokia’s profits had risen by 42%.
Ericsson, on the other hand, was not aware of a supply problem until Philips informed them of the fire some time later. Even after learning of the disruption, Ericsson was slow to respond and did little to mitigate the loss of supply. Product launches were delayed and prices remained high. By the end of the fiscal year, Ericsson reported losses of $1.68 billion, a crippling blow to the company. Eventually, Ericsson lost its dominant position in the cellular phone market, cut tens of thousands of jobs, and merged with Sony in 2001.
As this case study illustrates, companies that effectively manage supply chain security and risk and maintain a business continuity plan are companies that survive. In order to mitigate risk, companies must implement business continuity plans that allow them to detect problems early and respond quickly and effectively. By being proactive about detection, a company avoids being dependent on its suppliers, who may be slow to disclose issues that may cast them in an unfavorable light. Early detection also allows a company to respond quickly, minimizing the chance that the problem continues to grow undetected. Furthermore, by anticipating potential risks beforehand, a firm can craft appropriate responses that can be implemented immediately after a risk event. Ultimately, companies that take supply chain security and business continuity practices seriously are more likely to remain competitive in today’s global market.
Learn More About IMG Group, Experts in Business Continuity and Supply Chain Security
IMG, a top international security consulting firm, has extensive experience in business continuity and supply chain security. To learn more about the solutions offered by IMG, please visit: http://www.theimg.com/security-services/supply-chain-and-logistics-security-consulting
About the IMG Group
The IMG Group is a leading international security consulting firm with considerable experience in supply chain risk management and in assisting with a business continuity plan. Corporate or business organizations concerned about their need for global security expertise can reach out to the IMG Group for assistance. The company’s expert security consultants provide services such as executive travel security, international threat assessment, forensic psychology consulting, technical surveillance countermeasures and crisis management consulting. IMG Group also offers workplace violence consulting services.