Risk is a factor in business; managing and mitigating that risk is essential in order to survive and be successful. Organizations can prepare for risks they understand: hurricanes, tornadoes, earthquakes, and floods. These natural disasters are, unfortunately inevitable, even though it is often difficult to accurately predict the extent of the damage. Organizations that have their disaster recovery plans in place know how to respond and get “back to business.” But how do you prepare for the truly unpredictable event; one that occurs on a massive scale? How do you recover when your organization is hit by a “Black Swan?”
Black Swan events
In 2007, statistician and risk analyst Nassim Nicholas Taleb wrote The Black Swan, described by The Sunday Times as “one of the twelve most influential books since World War II.” His “black swan theory” refers to unexpected outlier events of major magnitude; ones that have huge consequences. These events play much larger roles than the natural disasters listed above and are usually on a global rather than regional, scale.
Before the current pandemic, the last Black Swan event was the 2008 financial crash of the U.S. housing market that led to catastrophic global consequences. In hindsight, many should have seen that coming but at the time only a few outliers proved prescient. A number of regulations did take place worldwide after the event to strengthen banks against future events. But only twelve years later, we are experiencing another Black Swan, the COVID-19 pandemic. Again, there are those who may have predicted this would happen, but for the majority of the world, this was an unexpected and unprepared-for event.
Navigating the Black Swan disruption
Disruption is a fact of life in today’s global economy, but these global events create extra levels of disruption. At the end of 2019, organizations were focused on growth; now, companies turn their attention to ensuring business continuity while minimizing the negative effects of the disruption. To help address some of the many issues businesses face, Corcentric has created an on-demand downloadable webinar series, “Navigating During Disruption.”
Business Continuity – Part 1 of the series, presented by Anthony Mignona, Corcentric’s Vice President of Strategic Solutions Engineering, addresses the need to secure the supply chain in order to ensure business continuity. Procurement professionals may need to re-evaluate their product and material needs with a focus on criticality, scarcity, and risk, both internally and externally with suppliers. While the tendency is to be reactive during a crisis, Anthony suggests being pro-active by using strategic thinking and innovation to prepare for the next disruption. And he notes that companies should take the opportunity to reassess those projects put on-hold due to disruption; to rethink and prioritize what should be addressed once the disruption passes.
Cost Management – How do you reduce costs and identify savings opportunities during a major disruption, while not impacting performance? In Part 2, Bill Dorn, Vice President of Strategy for Upstream Products at Corcentric, details the steps that companies need to take to make the right choices when it comes to cost reduction. Cost management depends on having full visibility into your company’s spend; identifying and assembling the right blend of resources; mitigating risk; and utilizing technology to optimize the procure-to-pay process. Bill also will relate how re-evaluating contracts can lead to significant cost savings, as can membership in a group purchasing organization (GPO).
Managing Working Capital – Improving working capital is essential to a company’s growth; it is even more important when a company is facing major disruption. Dan Andrew, Corcentric’s Sr. Vice President of Sales, lists and explains the seven central components necessary to manage and improve working capital, both in good times and bad. The first step is to manage cash flow; Dan explains how visibility into spend (including purchasing history) enables an organization to estimate predictable and unpredictable expenses and thereby control their cash flow. He explains how supply chain financing, payment discounts, and on-time payments can significantly reduce costs and improve working capital.
The reality is disruptions will happen, and although we may not know when the next major catastrophe may occur, it is possible to minimize the negative effects through strategic planning and proactive measures. Companies that think long term will come out on top. Those that don’t will ultimately fail.