Australian Floods Impact Global Supply Chains

Mining and Steel – What’s the immediate impact and long term outlook?

The impact of the devastating floods in Queensland will be felt through global supply chains for many months to come. Almost 70% of global steel production is dependent on metallurgical or coking coal. Australia produces two-thirds of global exports of coking coal, of which Queensland accounts for 35%.

Many major mining companies in Queensland have invoked force majeure clauses, which have temporarily released them from contract obligations. This has forced Asian steel-makers who buy the bulk of Australia’s coal, to find alternative sources including Russia, China, United States and Canada. These sources and inventories will keep steel plants running normally over the next few weeks, but the real impact on the steel industry will not be known until safety stocks are exhausted.

Lost Sales, Multiple Supply Chain Disruptions

As of 16th January 2011, the Queensland Resources Council estimates that the region’s coal sector has lost sales worth A$2.3 billion since the beginning of December. It is predicted that the disruption could remove over 5 percent of coking coal from world markets this year and inflate prices by a third or more.

About 40 mines in Queensland have been significantly affected by the floods. Many will take weeks to pump out the flood water and rebuilding critical infrastructure may take longer. Major coal rail lines in the Bowen Basin have been submerged or washed away. The port of Gladstone with a daily export capacity rate of 200,000 tonnes stopped receiving coal shipments on 31st December and only now is planning to resume shipments at 50% of capacity (20th Jan). It is likely to be the end of March before it is back up to full capacity.

Recovery from Previous Disasters

The mining industry has shown great resilience in the recent past: ‘In 2008, flooding kept some mines out of action for as much as six months, but others were able to start producing within four to six weeks’, said Andrew Harrington, an analyst at Patersons Securities in Sydney. Mines then increased their outputs to end the year about 10 percent below their original targets.

Insurers ‘Steeling’ Themselves for Major Losses

Yesterday, the ‘Insurance Day’ in London reported on insurers preparing for a surge of business interruption claims from the mining sector. This disaster looks set to exceed the Australian floods of 2008, which racked up a total of $1.5b in claims.

Supply Chain Impact of Water Shortages

Whilst the December snowfalls have taken their toll on the UK’s ability to deliver Christmas goodies, the impact of the thaw is creating further disruption for many companies. The water shortage in Northern Ireland is continuing to affect a huge number of home owners, but how are businesses coping across the area?

For manufacturing sectors such as food, pharmaceuticals and chemicals, water can be a critical dependency in many ways:

  • As an essential ingredient.  Take a well-known producer of soups in Ireland. Only a year ago, Batchelors faced a shut down as a result of burst pipes and the resulting drain on reservoirs.
  • Sanitation of processes and personnel. If work conditions become insanitary the workforce has to go home, vessels cannot be cleaned to required standards.

Perhaps your next supply chain risk assessment, should give some thought to the following:

  • How reliant is your business on the robustness of your local water supply?
  • What would the cost of a prolonged water shortage be to your business?
  • Does that justify further investigations into alternative emergency supply options?

It isn’t simply a winter problem. Water rationing in dry spells has the potential to cause disruptions that could go on for even longer.

Severe Weather Tests Supply Chain Contingency Planning

There certainly is a spectrum of views on the UK’s ability to plan for and react to extreme weather events. These range from the average man on the street complaining that the UK will always grind to a halt after only 1 cm of snow, to the opinion that we are learning from previous cold weather experience and beginning to become more resilient as a nation.

The recent performance of BAA and Northern Ireland Water suggest that the contingency plans of some infrastructure organisations have not accounted for extreme disruption scenarios. However, there may be some small glimmer of light at the end of the tunnel in the form of a review of the local authorities’ response to this year’s cold snap. This complementary report indicates that the local authorities have learnt lessons from the previous two winters.

Can any differences in performance between local authorities and infrastructure organisations be attributed to the difference in mandatory contingency planning requirements for first responders (governmental bodies, the NHS) and second responders (utility companies)?

Or is it more to do with the level of scrutiny following the disruption during the previous two winters (reported to cost the UK economy £1bn), which resulted in the Winter Resilience Review (final findings published Oct 2010)?

Either way, UK Plc appears to have applied some sound supply chain risk management principles in order to improve their local response efforts to the December snowfalls, namely:

–          Alternative sourcing options. By exercising ‘contingency’ contracts, farmers and their tractors were quickly mobilised with their snow ploughs to clear the highways.

–          Increased buffer stock. Following the well-publicised shortage of gritting salt last year, the government has taken decisive action to increase the national salt stock pile and then make local authorities pay through the nose if their own stocks are inadequate and they need more in a hurry.

As with most supply chain contingency planning, it’s all about justifying the investment in the solution by quantifying the potential impact of the threat.

SCAIR takes over SCRM where ERP systems stop

Some ERP systems, such as SAP, JD Edwards and Dynamics have very strong Supply Chain functionality, however do not focus on the SCRM issues addresses by SCAIR.

Whilst ERP systems manage the resources, SCAIR translates the financial impacts and is a very cost effective method of interpreting the outputs from ERP systems into valuable management information for mitigating the impact of supply chain failures.

Who uses SCAIR, our Risk Management Software?

SCAIR, our award winning Supply Chain Risk Management software is in use by a number of global organisations who understand the criticality of their supply chains and want to protect themselves against their disruption.

  • Insurance Industry: the 4th largest insurance broker in the world uses SCAIR
  • Pharmaceutical Industry: two of worlds top Biopharmaceutical companies use SCAIR.
  • Telecommunications: a world leading telecoms solution provider uses SCAIR.
  • Manufacturing: Fortune 500 Multinational Corporations rely on SCAIR.
  • Biotechnology: A large, multinational, biotech / life sciences company uses SCAIR.
  • Packaging: SCAIR is used by a worldwide packaging and distribution company.

Contact us to discuss how SCAIR can help you improve your supply chain resilience.

Major business interruption events challenge the robustness of global supply chains

2010 – a year of surprises? Or was it all pretty predictable?

2010 started uncomfortably for certain organisations with freezing Eurostar trains stuck in the Channel Tunnel and the threat of Pandemic flu still just lurking just over the horizon. April brought disruption for many more companies with the volcanic ash cloud casting an impenetrable shadow over the movement of goods and people in Europe. Car production lines came to a standstill when critical components were failing to arrive ‘just-in-time’.

Such headline grabbing events are always followed with the inevitable probing questions:
• Should these organisations have been better prepared for such eventualities?
• Where were their contingency plans?

The defence is invariably that “these acts of God were unforeseeable”. Is that acceptable in the current age of “if it can go wrong, it will”? After all, we live in a world that does not tolerate disruption – there’s no room for slippage in our modern, just- in-time existences.

This provided a topic for discussion on Radio 4’s ‘The Bottom Line’ a couple of weeks ago. Their general conclusion seemed to be plan for the ‘FORSEEABLE’ (aka freezing trains), but don’t waste your time planning for the UNFORSEEABLE (aka Ash clouds). If you don’t respond well to the Forseeable then you look silly – the Unforseeable you can get away with.

Well, there is a parallel argument that goes something along the lines of ‘plan for the effect rather than the cause‘. There is no point in trying to plan for every single unforseeable scenario (cause), but there is a great deal of value in planning for the impact of the unknown threat ( the effect). Analysing the impact focuses risk mitigating actions on the most exposed areas.

Business Insurance 2010 Innovation Award for Supply Chain Risk Management Software

Intersys joined 7 highly respected companies in New York to accept awards from Business Insurance, who recognised SCAIR, our ‘Supply Chain Analysis of Interruption Risks’ software as bringing innovation to the insurance industry.

SCAIR is used by insurers to help transparently determine Value At Risk for Business Interruption insurance for manufacturing clients.

The awards were decided by an independent panel of Risk Management professionals.

  • ACE USA
  • Aon Benfield Inc.
  • Aon Risk Services
  • Chartis Europe S.A.
  • FM Global
  • InterSys Ltd.
  • Marsh Inc.
  • Lexington Insurance Co.

Catherine Geyman accepted the award for Intersys and was joined on stage by Neil Campbell of Jardine Lloyd Thompson.

Supply Chain Interruption Software Demonstration

If you’re a Risk Manager, Supply Chain Professional or just someone concerned with the health of your manufacturing functions, how can you be sure you have fully considered your supply chain vulnerabilities?

Our software, SCAIR: Supply Chain Analysis of Interruption Risks, helps you fully analyse the risks to your business, and ensured you have considered mitigating correctly against profit variations caused by Supply Chain Interruptions.

Click here for a walk through demonstration of the software.

For more information, call Catherine Geyman on 0845 094 8925 or contact us online.

Supply Chain backup plans, weak links and Acts Of God.

It pays to have supply chain backup plans, providing you know what to back up.
SCAIR® helps you improve supply chain risk decision making. The outputs from SCAIR® enable you to quantify the impact of critical supply point failure on your bottom line, helping formulation of appropriate continuity plans and increased levels of preparedness should the unthinkable happen.

Having a weak link in your supply chain isn’t a problem. If you know where it lies.
SCAIR® makes supply chain exposures – and their remedies – obvious. Failure to fully understand the vulnerabilities in your supply chain could result in damaging business interruption. This can be avoided by holding strategic inventory or evaluating alternatives. SCAIR® enables a cost benefit analysis of the value of investing in contingency plans against the value at risk.

‘Acts of God’ don’t cut it with the board
SCAIR® helps you keep your supply chains running. In an increasingly dynamic, global business environment, maintaining continuity of supply is the key. Understanding the value at risk at each point in your supply chain will enable you to focus on your critical vulnerabilities. SCAIR® guides you through a detailed analysis of your exposures and calculates the impact of single supply point failures across your product portfolio.