When floodwaters threatened Bangkok in 2012, Peter Shelford found himself worrying about more than his own apartment.
The Thailand-based managing partner of DLA Piper also had to respond professionally to the region’s devastating floods which inundated 65 of Thailand's 77 provinces, left hundreds dead and threatened the international law firm’s local office and employees.
In October, the waters had almost reached the centre of the capital. “Every building in the centre [of Bangkok] had sandbags round it,” he said. “But sandbags were not enough. It was impossible to stop the flooding. The water was actually coming up through peoples' floors, up through the toilet and the sinks. It was quite terrifying and you never knew how long it was going to take.”
Shelford’s family had to be evacuated from their Bangkok ground-floor city centre flat. His company had to cover staff costs after homes of about 25 of the firm's 80 staff were flooded. Then, as the waters rose even more, about a third of the office had to be relocated an hour and a half from Bangkok to Pattaya.
Shelford says wryly he has become accustomed to dusting off business continuity plans. In the eight years since he arrived in Thailand (shortly after the December 2004 tsunami caused by an Indian Ocean earthquake), he has also experienced a military coup and two periods of major civil disturbance.
DLA Piper is just one of many global companies that has had to grapple with the many questions that arise during a disaster. What happens when a natural or man-made catastrophe forces a company to evacuate its staff? In today’s globalised business world, how can a firm cope with the loss of a vital supplier often thousands of miles away? And finally, how much should risk managers plan for disruption to their multiple layers of subcontractors?
Some companies use extensive planning or specialised software to forestall problems. Others put their best crisis managers in place in risky regions. One thing is clear, however: doing nothing is not an option.
As much as managers and companies try to prepare, it is never easy to predict which events will hit companies' global supply chains.
“Scratch the surface and go beyond the first tier of suppliers then you'll find a vast web of suppliers of suppliers,” said Caroline Woolley, EMEA head of the property risk practice at global insurance brokers Marsh.
Thailand, for example, makes about 25% of the world's computer hard drives. During the 2012 floods, plant closures led to shortages. Prices almost doubled within weeks, affecting personal computer makers across the globe. Car manufacturers had to slow production as they ran low on components.
Specialised software can help offset some risk, however.
In April 2012, a fatal explosion in Germany at the manufacturer of the chemical, ODT, led to crisis meetings at automotive manufacturers across the world. ODT is used to make a resin PA-12 which protects fuel and brake lines from corrosion. Some manufacturers hadn’t realised that, although their suppliers were different, they were all using the same factory in Germany to produce the chemical.
“It was what we call a 'diamond pyramid’ risk,” said Dan Purtell, US-based senior vice president for the supply chain solutions group at international standards and business services provider BSI. BSI has developed a software tool called “Supplier Compliance Manager” to bring together all the data about a company's business partners, along with the risks to their suppliers and logistics.
Software can also run computer simulations of how risk managers might fix damaged infrastructure after a catastrophe, said Justin Lyon, chief executive officer of big data simulation specialists Simudyne.
Recently, the company brought together around 200 experts to look at the potential impact of an earthquake on four ports in the US Pacific Northwest. In the space of a day, they were able to see the effects of their actions years into the future and to run the simulation thousands of times to test different strategies.
Prepare to not prepare
But as disasters do not generally go according to plan, some question the value of spending too much time trying to prepare for specific eventualities.
“The key is having flexible response plans,” said Rob Harford, head of risk services with merchant banking and risk management specialist, Salamanca Group, speaking from Tripoli in Libya. “One can respond to a civil war or a terrorist event or indeed natural disaster all under the same procedures. If you get too tied down in potential scenarios then you can waste an awful lot of time because the plans people put around potential scenarios are generally fairly inflexible.”
While some insist that so-called scenario testing is of debatable value during an actual emergency, others point to another role it can play: highlighting a company’s insurance coverage.
“There are big gaps between what's insured and total losses,” said Marsh’s Woolley, adding that scenario testing can help expose those gaps. The March 2011 tsunami caused a total of $210 billion in losses, but only $40 billion was insured. The US has learned from its mistakes and an average of 64% of losses from natural catastrophes are covered. In Europe, however, only 16% of losses can be claimed back, according to reinsurer Munich Re.
When it comes to the crunch and a company is confronting a disaster, Graham of DLA Piper is clear about what brings success. “Give me a good team over a good plan any day because you can't predict often what's going to happen,” she said. “You need the sort of people who can think on their feet, be flexible and not be hamstrung by a plan and checklist.”
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