Plan of action
Written by Graham Buck
With consumers reining in their spending and an increase to 20 per cent in VAT imminent, last December’s arctic weather was the last thing that retailers needed. According to Deloitte, heavy snow and sub-zero temperatures cost them around £750 million in lost sales over the month. Ocado was one of the very few to buck the trend with a 27 per cent increase in its festive sales and its chief executive, Tim Steiner, didn’t pass up the opportunity to take a shot at his rivals. He accused many of using the snow as an excuse for their bad performance and stressed that his company’s 700-strong fleet of vans had managed to deliver 98 per cent of customers’ orders in the four weeks to Christmas.
As last winter again demonstrated, bad weather doesn’t just dent sales. Interrupted supply chains and empty shelves, employees unable to show up for work and dislocated power supplies are other business critical incidents that can result. But disruption can come about from many other causes. A March 2010 survey of organisations by the Business Continuity Institute (BCI) found that 94 per cent of respondents had suffered business interruption at some time during the previous 12 months. In addition to adverse weather and failing energy supplies, other major reasons were swine flu, disruption to IT and telecommunications and the increasing incidence of cyber attacks.
“Retail is at the top end of sectors exposed to things that can potentially go wrong,” says the BCI’s technical director, Lyndon Bird. “Yet beyond the major chains, take-up of business continuity appears to be quite low. Despite this it’s part of the DNA of retail to expect potential for interruption and manage it, so most companies are actually quite resilient.”
Retailing is also particularly vulnerable to supply chain disruption and last October the BCI published research based on a survey of organisations across 35 countries. Of these, more than 70 per cent had experienced at least one interruption in supplies during the year, and one in five companies admitted that they had suffered damage to their brand or reputation as a consequence.
The organisations surveyed had reviewed their supply chain risks and, on average, had five different risks although a few identified more than 50. In addition to bad weather and IT/telecoms outages, another major cause cited was failure of service provision by outsourcers. With half of the businesses having tried to optimise their business through outsourcing, consolidating suppliers and adopting just-in-time or lean manufacturing techniques, being let down by a supplier has become a major cause of supply chain disruption. More recently the devastating earthquake and tsunami in Japan threatens to have serious consequences for retailers ranging from car dealers to electronics outlets.
The Supply Chain Resilience Report concluded: “Most organisations sit at some point between the polarities of ‘no risk at any price’ and ‘lowest cost at any risk’ but the survey indicates that business continuity is still overlooked in supply chain decisions.” But with ‘unexpected’ events seemingly occurring with unsettling regularity, retailers lacking some form of business continuity strategy are putting their very existence at risk.
“For your business to be disrupted by poor winter weather once can be deemed acceptable,” observes Richard Goodall, sales and marketing director at managed services group PCMS. “But to be caught out by three severe winters in succession suggests that you haven’t really done your planning. The question is how much you’re willing to spend on maintaining the business as there is always an element of compromise. It might be better to focus on a 99 per cent success rate as the cost of retaining that missing one per cent just isn’t worth the payback.”
Bird agrees that a sense of realism is essential in devising strategy. “What is it about the business that you need to keep going, and why? Business continuity isn’t about doing everything, but focusing on what is urgent - principally maintaining your turnover and protecting your reputation. On the other hand, resilience has to be balanced against the increased costs and impact on competitiveness if, for example, you maintain a much bigger inventory.”
The recession and the need for retailers to cut costs may have discouraged some from taking action. But Jorre Belpaire, channel sales director at Zenith Infotech Europe, suggests such an attitude reflects false logic. “If a business has multiple sites that have similar IT requirements with regard to applications, internet connectivity, telephony and IT infrastructure, a business continuity plan is essential to help you drive deployment and operations costs down across your chain network,” he says.
The Olympics challenge
The major retailers generally have years of experience in developing their business continuity strategies. The programme at Sainsbury’s was established back in 1996 following an escalation of the IRA’s bombing campaign on mainland Britain, reports the supermarket group’s head of business continuity Steve Mellish. “Like many other companies, business continuity initially evolved from our IT recovery strategy. Indeed, many businesses rightly regard losing their IT systems as the worst case scenario, but fail to look beyond that to other possibilities,” he says.
Some examples that Sainsbury’s has faced include the six-week closure in 2005 of a major supermarket, together with other stores, at the Castlepoint shopping centre close to Bournemouth due to a structural fault in the multi-storey car park. The group’s continuity plan identified the three nearest stores so that these could help offset the disruption to customers and both staff and deliveries were relocated until Castlepoint reopened.
Four Gloucestershire stores were affected by the floods of summer 2007; not by water damage but by Severn Trent’s disconnection of water supplies to 350,000 households and businesses. “Closing them wasn’t an option we even considered,” says Mellish. “Supermarkets are increasingly regarded these days as survival centres, with big demand for staple products. We ensured that large quantities of water got through to the stores affected and even accommodated the armed forces and police who distributed supplies from our car parks.” The grocery giant was also prepared two years ago when a swine flu outbreak occurred, having commenced work on its pandemic contingency plans four years earlier.
Meanwhile, Mellish suggests that the 2012 Olympics and Paralympics present a major business continuity challenge for retailers, with heavy additional demands on London’s roads and public transport system for a total of 47 days. “Everyone wants it to run as smoothly as possible, but with athletes, the media and the public travelling to 25 different venues across London alone there will be major implications for deliveries. The Olympics Delivery Authority is undertaking a lot of work in engaging with businesses, so they realise just what the potential challenges are.”