Driving change

Critical thinking

In On the Origin of Species Charles Darwin points out that it’s not the strongest or most intelligent of the species that survives, but the one that’s most adaptable to change.

The same holds true for businesses, especially manufacturing businesses where cost – in the form of plant – and start-up time is more illiquid than for knowledge or people-based sectors.

Change comes in many forms: developments and disruptive technologies; changing economic, political and legislative landscapes; the interaction of individuals and business outcomes; etc. But just as these influence the prosperity of a business, so disasters, especially those that occur without warning, can fell an organisation.

Fire, flood, IT failure, personnel matters, the increasing threat of cyber attacks, and the prospect of another pandemic, etc, as well as issues relating to public affairs can be destructive and strike at the most inopportune of times.

Indeed, the sector has suffered. In June this year, a fire at business service provider Paragon’s inbound mail site in Leicester effectively destroyed much of the facility. Notably, Paragon invoked its disaster recovery plans and its customers were made aware of what had happened.

A month later, in July, corrugated box specialist Lionkent was among dozens of businesses impacted by a devastating fire at a Hertfordshire industrial estate. The company’s unit on the estate was affected even though it was some distance away from where the fire broke out. The roof had partially collapsed.

And there are plenty more examples once you start looking for them.

Management discipline with benefits

John Robinson, managing director of Inoni, a business continuity consultancy, says that business continuity planning (BCP) is a management discipline that sits alongside others such as risk, compliance, and information security. Robinson says: “It is not generally viewed as a bottom-line contributor but has an important part to play in establishing capability, trust and confidence in your business.”

Similarly, Graeme Lipman, a finance specialist and director at BTG Advisory who advises BPIF members, defines it as “the process of preparing an organisation for unplanned disruption by identifying and addressing the potential threats and vulnerabilities of the business”. Simply put, he says that “a robust business continuity plan puts an organisation in the best position possible to survive during times of adversity”.

BCP sits alongside insurance, although Robinson notes that many manufacturers assume it will have little relevance for them. “They ask how can a paper plan recover a production facility that requires components that have a six to 12 months order lead time?”

To detractors, his response is that BCP equips a firm to answer the deluge of questions posed during a crisis, but in relative comfort. It puts firms in control, buys time and builds confidence. Lipman warns that while not having a continuity plan does not automatically result in failure, “having a well thought-out plan in place ahead of time could help pave the way back to success if disaster strikes”.

He says too that by anticipating likely threats, firms can get one step ahead and reduce the likelihood of them occurring in the first place, or at least help to mitigate the effects if they are ultimately unavoidable. “Crucially,” he says, “a business continuity plan frees firms from having to make critical decisions in the midst of a disaster when thinking and judgement are more likely to be impaired.”

To work well BCP needs continual top-level backing, an owner and a budget. At its simplest, a BCP manages exposure to continuity-threatening events. Says Robinson: “It’s like life assurance: while you hope never to use it, BCP assures shareholders and trustees, regulators, insurers, prospective and live customers, suppliers and employees. It makes them happy to invest in you.”

Practically speaking, BCP in a disruption situation can save lives and livelihoods, helps avoid knee-jerk reactions, buys time, reduces error, simplifies the chain of command, and can keep customers on-side.

But in times of normalcy, BCP develops capability, so people know what to do when called on; builds in organisational resilience; inspires customer confidence; builds confidence of investors and suppliers alike; and can ensure supply chain security and order fulfilment.

Lack of true commitment

As Robinson sees it, manufacturers “are generally aware of the risks they take and insure against them to a level they think will compensate them if things go badly wrong”. 

However, he adds: “I would say that only a minority truly embrace BCP and grasp its true value.” He says that those that do tend to be driven toward it by diligent insurers and, increasingly, customers.

He adds that “the best manufacturing BCPs work hand-in-glove with business interruption insurance (BI). This pays out against an agreed profit projection for maybe 12, 18 or 24 months following a potentially catastrophic incident, and delivers the profit a firm would have received had no incident occurred.” Fundamentally, BI takes away the financial pressure and allows plant to be rebuilt.

But even with good BI cover, unless a firm knows what to do – has prepared the ground, documented strategies, sourced plant, trained people and practiced – there’s a good chance they’ll get it wrong. 

A loss adjuster will guide the firm, but they can’t retrospectively brief customers and suppliers on what to expect. Similarly, firms can’t make collaborative arrangements with third parties to provide support after the fact.

The risks faced by the sector

Of course, every business faces risk and as Robinson knows, most organisations have some understanding of those they face. But continuity risk is different; he says “it relates only to threats that have very low likelihood of occurring and penetrating defences yet have potentially catastrophic consequences for business. Typically, we can identify tens of these triggers, possibly hundreds, depending on circumstances, however, the resulting scenarios we must deal with are relatively few in number, and this is key to effective continuity planning.”

In terms of practicalities, Lipman recommends planning for three distinct scenarios: a ‘planned’ scenario whereby the business continues to operate as expected; a ‘plan B’ scenario for when performance is not quite as expected; and finally a plan for a ‘worst-case’ scenario which can be implemented when the business is at real risk of failure due to either financial or operational challenges. He says to “think of it as a roadmap to success, highlighted with detours to take if the journey doesn’t quite go to plan”.

As to the detail of what to plan for, the most likely are loss of site or part of site; denial of access for two weeks or more; loss of technology or automation; loss of data or information integrity, including disclosure; loss of critical plant, equipment or resource; loss of a key supplier; and loss of product integrity, contamination, and quality.

But there is another, alluded to earlier – the impact of a pandemic which can affect supply chains, demand and staffing. And there have been cases of Covid-19 felling firms in the print sector.

Take Mediashore Ltd, a multi-service London-based printer. It went into liquidation in June this year. According to its abbreviated accounts for the year to 30 September 2021, Covid-19 had caused significant disruption to the business, with trade much reduced.

Then there was print management service provider Fisherprint that went into liquidation two months later. Chief executive Miles Fisher said that the factors resulting in the closure of the business were “many and varied”, with Covid initially responsible for “a serious reduction in turnover that has never really fully recovered” alongside increasing materials and consumables costs over the last 12 months “that has kept the market depressed”.

The pandemic serves as a timely reminder to Lipman of the benefits of having a business continuity plan in place. He details a printer he was called in to help that suffered the lasting effects of Covid: “Following a breach of convenant over its CBILS loan, an SME print company was recently referred to us by their bank. The company had lost work due to the pandemic and recovery following the lifting of restrictions had been frustratingly slow. This left the company in a precarious financial position.”

He tells how, following eight months of restructuring advice, monthly management meetings and support with securing new funding, “the company was back on track with increased revenues, strong working capital, and a much-improved relationship with the bank”.

In his view, while the specifics of the pandemic could not have been predicted, “having a plan in place for an altered trading environment – such as ensuring alternative funding channels to bridge any unexpected gaps in cashflow are in place, as well as assessing restructuring options ahead of time – gives a company the best chance possible of bouncing back swiftly from whatever challenges it faces.”

Writing a plan

Those firms without a BCP need to set about creating one. “The first step,” says Robinson, “is to think about building a management system with clear and enduring scope and objectives. This means analysing the organisation thoroughly because if you don’t understand it, how will you rebuild it?” The top management should be involved.

And Lipman doesn’t disagree. In fact, he considers it “vital that any business continuity plan is drawn up by someone with a deep understanding of the company’s operational and financial position”. In a small business this is likely to be the accountant or financial director. An outside consultant could – and should – be considered if in-house resources mean there is no one suitable from within the business to prepare this document.

That said, the next step – for Robinson – would be to understand the marketplace and the deadlines faced. Allied to this is the need to inventory everything required to resume operation, distinguishing clearly between emergency, crisis and recovery, and providing for each.

“You also need to define the roles you will assign to maximise response effectiveness,” says Robinson, adding: “Plan specifically for recovery from IT-specific conditions, including cyber-related situations. Collect also the detailed information you need to fuel any response as well as staff and supplier details… practice the response and iron out any defects.”

Everything that is critical to a product’s creation should be considered with management comfortable that a disruption at any stage can be dealt with, in an acceptable timeframe.

The last step outlined by Robinson is key – “make it part of business culture, an accepted behaviour, supported from the top”. The biggest issue he finds is that “business continuity is prone to neglect and underperformance, maybe judged too difficult or a waste of time, and widely misunderstood”. The result is that “everyone assumes it will work. No one tests or values it and due to a lack of understanding or will, people end up being misled.”

Fundamentally, those that already have a BCP are advised to test it. Robinson says the test should initially be passive, “with senior people sat around a desk responding to a straightforward but realistic timed scenario, say a fire. Now compare what they say and do with what’s written in the plan”. He says that if the content could not be followed by their deputy with the same outcome, it needs to change.

Beyond this is a need highlighted by Lipman, that once finalised the plan should be “revisited on a regular basis to ensure it is still relevant to the business, how it operates, how it is funded, and revised in light of any changes within the industry as a whole.”

The world of manufacturing has one advantage compared with that inhabited by biro pilots. Tabletop exercises are useful and have their place, but in manufacturing there is an opportunity to actually carry out ‘real’ tests of the arrangements.

To finish

It’s hard to give examples of situations that might have been improved with a BCP as few organisations actually want to shout about the times when they came close to catastrophe. That said, consider what happened to Nokia and Ericsson who had two very different approaches to supply chain management. After a fire at a Phillips microchip plant (a supplier to both) in New Mexico in 2000, their differing contingency arrangements and responses saw the outcome vary dramatically for both organisations. So much so, that Ericsson ended up merging with Sony, losing $400m worth of sales while Nokia stole a huge amount of market share and cemented tself as one of the major players in the booming mobile phone sector (before being displaced by Apple).

Print should learn from Ericsson’s mistake.