ISSUES IN EUROPEAN CONTINUITY

In the aerospace industry, sub-assemblies may be made up in France or Italy for final assembly in UK or for inclusion in larger sub-assemblies that may be sent, say to North America for final assembly.

One of our clients operates from a number of their own factories that provide materials or sub-components for final assembly, or to make sub-assemblies, in one or more of their other factories. In turn these are sent to their customers, aircraft or aero engine assembly plants.

On many contracts, they have substantial penalty clauses for missed deadlines on manufacturing projects and deliveries. For spares, AOG (aircraft on ground awaiting spares) is a high priority - somewhere, an airline is losing money.

The whole supply chain is time-critical, high value, highly interdependent, international and, once you examine it closely, really very fragile.

The logistics involve courier or transport companies, all of whom are dependent on fuel. We have also seen interruptions to business from widespread flooding and interruption of the rail network.

Any interruption to supply, from whatever cause, can be critical and cause the loss of substantial sums of money. Much of this loss is likely to be uninsurable.

Another client is a ladies fashion retailer with over 300 stores. They replenish the stores overnight: no fuel, no replenishment. No replenishment, no stock to sell.

If all your competitors (and maybe your customer) is hit by the same problem, things are not so bad. But if your competitors are operating while you are not, you could be dead.

What are the solutions?

• Stock holding - carry buffer stocks. This may be practicable for low-cost items, but could be prohibitively expensive for high value goods.
• Use of alternative transport (e.g. rail or air - if practicable) but rail and air also depend on fuel.
• Use alternative suppliers - but over the last ten years, large companies have reduced the number of suppliers dramatically: there is much less choice of supplier than their used to be, and the size of the procurement is so large that alternative suppliers may not have the capacity
• Distributed sites - internationally, as is being done in the automotive industry. This has overheads in logistics costs, in foreign exchange risks and in constraints of the individual countries’ labour laws.
• Flexible production lines in different factories, with one being able to assume the workload of another, higher priority, production function
• Contractual protection - use of exclusion clauses, service level agreements etc. to reduce commitment
• Insurance - creative use of insurance to compensate for financial losses caused by loss of profits or penalty clauses
• An holistic approach to risk management - Enterprise Risk Management - so all these risks are considered and effective risk reduction measures are put into place
• Effective business continuity planning
• Sharing best practice by networking and joining Survive, the international user group for business continuity.

© Andrew Hiles

Founder and former Chairman Survive

Director, Kingswell