Tag Archives: business continuity

Survey on Green/Ethical Procurement in Disaster/Supply Chain Disruption Recovery

As the world begins to assess the global economic impacts of the Japan disaster, it is clear that many industries are facing major supply chain disruptions.

Generally, companies have robust business continuity/disaster recovery plans that provide for employee safety and continued business operation.  At the same time, in the last 5 years have we have witnessed an explosion in the adoption of green/ethical procurement standards.   So we have posed the question:

How are corporate green/ethical procurement standards addressed in emergency recovery plans – if at all?

Elm has launched a short survey to gather general information on this question.  Click here to participate in this survey.  Please be assured that we do not track any information about the participants and no company/individual identification information is requested or gathered.

The results will be published here in 2-4 weeks.  We appreciate your participation.

Japan Tragedy Tests Ethical/Environmental Procurement Standards

As the world grapples with the immense impact of the disaster in Japan, attention is turning to the global economic impact of the country’s lost production.  Japan has long been a critical link in the supply chain of many industries – perhaps most notably in the automotive and electronics sectors.

The Financial Times ran a piece today on this which touches on contingency plans to help replace lost production stemming from unforeseen major disruptive events.

In this context, a question arises:  Will companies enforce their procurement requirements for vendor EHS performance during this period?

Elm has long discussed EHS risks in the context of supply chain disruption contingency planning.  In past years, the risks have been more focused on matters related to how production redistribution could cause violations of various environmental permit limits tied to production levels.  However, the rise of ethical purchasing standards – as voluntary and highly publicized corporate commitments – has altered the definition of EHS risks in supply chains.

It may be months or years before some of the Japanese plants are in production mode again.  In the interim, companies impacted by the disruption face a conundrum:

  • Do they attempt a rapid production recovery by quickly engaging second-tier alternative suppliers that may not meet EHS procurement standards (i.e., relaxing their supplier requirements)?
  • Or do they stick to the EHS standards for suppliers, thereby risking potentially extended production downtime while either (a) searching for a supplier who meets the standards, or (b) bringing a supplier up to speed?

Certainly, it is easy to say there is a third option – implementing an existing contingency plan with an existing alternate supplier that already meets the EHS procurement standards.

But few manufacturers have that third option available, as EHS concerns tend to be overlooked in supply chain disruption planning.

In Tampa, a Mining Company Shutdown Highlights Business Interruption Risk from Environmental Issues

In Tampa Bay, an all-to-real demonstration is playing out of the trickle-down economic impact of a company operation being shut down for environmental reasons.  The Tampa Bay Business Journal reported this story.

The Mosaic Co. is a publicly-traded company with over $6billion in annual revenue reported last fiscal year.  Mosaic mines phosphate ore.  The company has been mining in Polk County since 1995 and recently filed for an expansion of operations to access reserves in Hardee County.  These ore reserves represent about 10 years of active mining operations.

The Sierra Club, along with other NGOs challenged the issuance of a federal permit that would allow Mosaic to expand, alleging that the expanded operations would cause environmental damage to the headwaters of the Peace River and other streams that drain into the Charlotte Harbor estuary.

On July 30, in response to the challenge

U.S. District Judge Henry Lee Adams Jr. in Jacksonville issued a preliminary injunction against the expansion, saying the Army Corps had failed to adequately explore alternative plans that would cause less environmental damage to the area.

The article reports that, if the Mosaic expansion does not move forward, the economic impact would be dramatic.

At least 18 companies that do business with Mosaic would be out at minimum of $80 million in combined annual revenue, and about 400 of their employees would lose their jobs, in addition to the 221 Mosaic workers who would be laid off …

“If Mosaic is prohibited from further mining, it will mean that Bul-Hed Corporation would cease to exist sometime in the near future,” Ronnie Hedrick, president, said in a court filing.

Mosaic has estimated it would lose $250 million to $300 million in operating earnings in a worst-case scenario.  In its fiscal year ended May 31, Mosaic had earnings of $1.75 billion before interest, taxes, depreciation and amortization on net sales of $6.76 billion.

Business Interruption Planning

The company’s most recent 10-Q (Item 1A – Risk Factors), filed April 1, 2010, did  disclose this potential risk:

Expansion of our operations also is predicated upon securing the necessary environmental or other permits or approvals. Over the next several years, we and our subsidiaries will be continuing our efforts to obtain permits in support of our anticipated Florida mining operations at certain of our properties. In Florida, local community participation has become an important factor in the permitting process for mining companies, and various local counties and other parties in Florida have in the past and continue to file lawsuits challenging the issuance of some of the permits we require. In fiscal 2009 environmental groups for the first time filed a lawsuit in federal court against the U.S. Army Corps of Engineers with respect to its issuance of a federal wetlands permit and similar lawsuits could be brought in the future. A denial of, or delay in issuing, these permits or the issuance of permits with cost-prohibitive conditions could prevent us from mining at these properties and thereby have a material adverse effect on our business, financial condition or results of operations.

Even so, how should the company – and its business partners – respond to such a risk?  And did business partners understand, assess and plan for such a contingency?  In many discussions we have had with clients about potential shut downs, it is common for companies to plan production volume shifts across other operating locations to make up for the lost volume and continue operating.  In Mosaic’s case, however, the article states:

Although Mosaic has four other mines in Florida, their output would not offset the impact of a shutdown at South Fort Meade, the company said.

Even where a company has the physical capacity at other locations to make up for lost production at one plant, environmental restrictions may not allow timely production increases at others.  Wastewater and air permits typically contain conditions limiting production.  These limits can take various forms:

  • Direct limits.  For example, plant operating hours or volume; emissions limits for production equipment or material use; wastewater flow or contaminant concentration limits.
  • Indirect restrictions.  For example, fuel use or emissions limits on supporting equipment such as generators or boilers; wastewater treatment capacity/retention time for adequate treatment.

Suppliers, contractors and vendors may attempt to recover losses from Mosaic through the contractual obligations in place between the parties.  However, in this case, Mosaic has notified at least some of their business partners that this is a “force majeure” event – an extraordinary circumstance beyond their control – which releases Mosiac from contractual obligations.

Has your company evaluated/assessed the myriad business continuity risks associated with environmental matters in your supply chain?  And what contingency plans do you have in place to protect yourself?