High Risks in Your Supply Chain that You May be Blind To

The benefits of outsourcing production processes or services to suppliers are many: it can provide a better product or service than you would be able to produce internally; it can increase your efficiency; it can allow you to focus on core areas; and, of course, it can reduce your overall costs. Meanwhile, it also creates additional risks companies may not be factoring into their own business formula for success.

Lack of transparency

Suppliers are often reluctant to share information they may see as proprietary or confidential but it’s essential that they give reasonable assurance that they have plans in place for business continuity and that they are regularly maintaining and testing these plans. Their process may include a wide scope of operational dependencies so it’s valid for regular assurance and audits from clients.
Sufficient monitoring and alerts of operational outliers or different-from-expected production or delivery is also a basic requirement. Many clients now require automatic monitoring and timely technical reports. If your organization is not already formally requiring this from your key suppliers, introduce it into your relationship. Conjoined tests and validation exercises are valid trust builders and can improve expectations and transparency in the vendor-client relationship.

Unclear contracts

Relationships with critical partners frequently begin with a trust or “handshake” agreement on delivering a small service with little risk but develop over time into a critical dependency. When contracts are not fully formed or re-addressed as the relationship matures, both parties can end

Secondary suppliers

It’s a global market and many of your suppliers have their own suppliers – around the globe. In fact, those that are delivering value to your suppliers may be receiving value from you or someone like you. It is a small world, afterall. The key is to understand relationships that are imperative to you and their dependencies. Are several of your vendors relying on the same supplier for a raw material? Do your vendors require the same level of standards you do from their partnerships? There are many layers of business these days and it’s difficult to see the supply chain clearly across several (perhaps as many as several dozen) variables. In short, you need to know your suppliers as well as you know your customers.

Quality control 

Don’t forget that because today’s global supply chains are so interdependent, the number of organizations that influence your product multiplies the complexity of product quality. Each organization carries their own process methodologies, operational policies and strategic initiatives. Each piece of these creates another layer of complexity. It’s easy for a small part to become obscure and the detail less defined, resulting in a poorer level of product. Clear service level agreements and carefully systematized audits are needed to set and maintain standards of quality.

In conclusion, many risks that come with supplier relationships can be minimized through establishing clear expectations early in the relationship and continuing to clarify those expectations throughout the working contract.

For more information: http://www.dcsplanning.com

Business Continuity as a Fiduciary Responsibility

A fiduciary duty is a relationship of trust between two or more parties. The continuity of the business structure is encompassed within that duty. This trust rests on the business's ability to bring reliable results in a systematic manner. When disasters occur from operational risk the instability can easily undermine the trust relationship in place and erode confidence in the service provider.

Every business leader has a responsibility to pursue continuity management and ensure it is given space and respect within their business. Leading an organization requires integrity and trustworthiness which is demonstrated by the steady continuity of the organization.

It is the responsibility of senior management that the company identifies, prioritizes, manages and controls risks as a part of the strategic planning process. As a part of its support for continuity planning, appointing knowledgeable people and allocating sufficient financial resources for implementing the plan are the two most critical advantages. The emphasis is on planning for the worst and committing to the development of a responsible plan to minimize the impact of harmful or unlikely events. It is also the fiduciary duty of the management to provide reasonable complete disclosure of the actual state of the company to its shareholders.

Discovering potential improvements that can be made to the current business systems and ways of reducing the business costs is basic for devising a good business plan. It is an accepted fact that all risks cannot be fully avoided and a company may need to accept partial residual risks. Business continuity planning is the tool that is used to manage these residual risks. A good robust plan will help a company to continue its operations -- even in case of a disaster.

It would not be sufficient to implement a generic business continuity plan. For the plan to be effective, it must be customized to specific risks and catastrophic scenarios like major building loss or local system failure. The necessary steps to recover from natural or man-made disasters must be understood and planned, and eventually tested for effectiveness. A look into the unforeseen future may result in improvements in the operational efficiencies in the present.

The business continuity plan must be reviewed and updated at least annually depending on the changes in the organizational structure, business operations and resource requirements. The company should also create business continuity and disaster recovery teams to create general awareness and to provide training to all the staff members. A proper plan will help in significantly reducing losses, if the company is hit by disaster.

A business continuity plan can help protect a company’s image, brand and reputation. Being known as a reliable company is always good for business. Warren Buffet said, “It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you’ll do things differently.” Doing things differently means deliberately managing your ability to deliver. Business continuity planning demonstrates there are good practices in place within your organization. To find out more about how you can drive healthy continuity in your organization give us a call at 888-297-7526.

Rivulets

Rivulets are those tiny droplets of water that join together and move in a common direction. After lots of movement over time these little streams can really impact their environment  in significant ways. They begin to shape valleys and eventually build canyons. We have rivulets in our lives and it is my sincere belief we have rivulets in our businesses.  They are the little behaviors that eventually tip into culture and build our character and legacy.

Business rivulets start with people.  Managers leading encouraging, motivating little streams to run in certain paths.  Perhaps invisible at first, over time erosion is clear. What does this have to do with business continuity?  Everything.  Rivulets form shape of your resilience.  Day after day they reinforce or degrade direction, efficiency and speed.  Contingencies are initially built-in as the path of least resistance but leaders can design them to create value and build character.  What canyons are your rivulets building?

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Business Value Balance

Given that you agree with the recent post on every business having the same four core values . . . let’s continue our discussion.

Here’s a diagram for visualization: Business Value Balance.  Each operational value exists in a spectrum (generally from happiest to least happy).  Depending on the current score for each value on their respective spectrum, business is probably good.  Referring to the chart, you can see the business as the core, four-pointed star.  When the staff is happy, the customers are happy, the business is generally likable and its making a profit the business is sustainable.

There’s another star, too:  a red, eight-pointed star.  The eight-pointed star is the zone of risk tolerance. If you chart the scores of the four requirements for sustainability within the level of tolerance, it’s holding steady. If the level of value isn’t meeting or exceeding the least tolerable level, then its a problem.  Simple enough.  When one or more of the scores exceeds the level of tolerance, the business will naturally look for ways to move back toward a balance.

HERE’s THE CATCH: How the business finds its way to pull one score back to center could happen at the cost of another value.  And, if no one’s managing the balancing act, it will be at the cost of another value.  They’re all interrelated so they will all be effected.

If you don’t have plans to deal with keeping the four basic core values in balance, business ends up looking chaotic.  It is constantly in flux, always pulling and pushing at itself.  Costing the happiness of staff, the happiness of clients, likability and profit.  This diminishes sustainability and resilience.

Next blog: keeping the business values at the center of your continuity program.

What do you think?  Do you agree?  Disagree?  Case studies?

 See more at: http://www.dcsplanning.com

Operational Risk now OCC’s top concern

Operational risk has eclipsed credit risk as national banks’ chief safety and soundness challenge, Comptroller of Currency Thomas Curry told the Exchequer Club in Washington, D.C., last week.

Operational risk – the risk of loss due to failures of people, processes, systems and external events – is “high and increasing,” Curry said.  He cited flawed risk models, lack of adequate controls over third party vendors and anti-money laundering efficiencies as some examples of operational risk.

“[A]s banks and thrifts face greater resource constraints and higher compliance costs, they may feel greater pressure to economize on systems and processes in order to enhance their income and operating economies …,” Curry said. “All institutions … must resist the temptation to under-invest in the systems and controls they need to prevent greater risk and larger losses in the future.”

He emphasized the risk of operational failure is embedded in every activity and product – from a bank’s processing, accounting and information systems to the implementation of its credit risk management procedures.

“No issues look larger today than operational risk in all its dimensions, the manner in which all risks interact, and the importance of managing those risks in an integrated fashion across the entire enterprise,” Curry said. “These themes are a supervisory priority for us at the OCC today and they should similarly command the attention of the industry.”

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All Business Values are the Same

In my experience coaching businesses for operational resilience I’ve found that all businesses are inherently the same.  Just as they can internally organize themselves into three simple zones of selling, making and managing, they can also break down their operational values into four categories 

1.  Happy staff – Employees who are generally satisfied enough to stick around and get the job done to (at least) a minimal specification.

2. Happy Stakeholders – Clients/Customers/Shareholders/etc that get what they expect from their relationship with the business.

3. Profit – Not just production or income, making money on top of what the job costs.

4. Generally likable - Be it regulators or media groups, if the business is not “generally likable”, the business can ultimately be  made very uncomfortable and even fail if it’s not generally likable.  It’s comes down to sustainability and, if brought to an intolerable level it’s a serious risk.  I’d love to hear your suggestions on better names for this category.  For example, when several senior managers fraudulently and unethically used the business for their own gain at the high cost of your employees and shareholders, your business is probably generally unlikable.  When an employee is using your business opportunities to get access to young children they are also abusing, your business is probably generally unlikable.  You get the picture.

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How Excellent Companies Avoid Dumb Things – 12 Principles

I just finished an excellent book on driving change in business: Neil Smith’s “How Excellent Companies Avoid Dumb Things”

Here’s the 12 principles that cut through the barriers:

1. The CEO must personally lead and support and change process carried out across the entire organization and a majority of senior management must also support it.
2. The entire organization must be engaged in the change process.
3. The project must be guided by “stars” who are willing to change the status quo.
4. There must be no up-front targets for the company as a whole or the individual departments within it.
5. Those who will implement the idea must own the idea.
6. It must be easy to put ideas into the change process but hard to remove them.
7. Consideration of ideas must be based on facts and analysis, not opinion.
8. Consensus must be built.
9. There must be a focus on increasing revenue, not just reducing expenses.
10. The change process must not disrupt normal business.
11. Implementation must be nothing less than 100 percent.
12. The change process must be about culture change, not just a completed project.

Smith is right, constructive change that you want to see in your business is going to begin at the top and must be measured and deliberate.  Don’t mistake success for luck.  It’s not going to come easy!

See more at: http://www.dcsplanning.com