Disaster Due Diligence August 27, 2010

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Food safety

HEADLINE: Nationwide meat recall announced

SUMMARY: On the heels of the massive egg recall related to salmonella, a New York state company was forced to recall about 380,000 pounds of deli meat that may be contaminated with a potentially fatal bacteria, the U.S. Department of Agriculture announced. The products were distributed to Wal-Marts nationwide and may be tainted with Listeria monocytogenes, which was discovered in a retail sample collected by inspectors in Georgia. The USDA had received no reports of related illnesses by midweek.

STORY LINK: http://www.cnn.com/2010/US/08/24/meat.recall/index.html

ANALYSIS: What is the cost of a disaster? Can your business survive these costs? The statistics are alarming. BP has already seen a 50 percent drop in shareholder value from the Gulf spill with more costs coming. FEMA and the Department of Labor state that 55 percent of businesses that experience a disaster fail within two years.

Not counting related claims and reputation damage, the recall, recovery, restocking, disposal of 380,000 pounds of deli meat will easily exceed $1 million. The egg recalls will be many times this number. What product or supply chain-related issues could impact your business? What vulnerabilities and threats have you identified? How do you monitor these risks?

We take for granted most things are safe and available. We presume food is safe and easily available. We are reminded regularly that food is not safe and is highly vulnerable. The impacts from food contamination range from money to illness to death. If it is a member of your family, you have a zero tolerance for food risk. What tolerance do your customers have for your products and services? Do you have a crisis management plan?

Food can easily be a terrorism target. We should expect to see food recalls on a regular basis. Does your family have a supply of food to carry them through a disaster or shortage?

--Jim Satterfield, Firestorm President/COO

Supply chain

HEADLINE: Israel, Iran and Imminent Supply Chain Risk?

SUMMARY: Supply chain analysts are speculating on the impacts of a possible attack by Israel on Iran’s nuclear facilities. One industry expert said that while oil and diesel prices would soar in the short term, how long the prices stay elevated depends on the Iranian response and whether that actually impacts the flow of oil. Wider war breaking out could lead to a closure of the Suez Canal, which would not only impact oil but the flow of goods as well. About 6,000 container ships a year pass through the canal.

STORY LINK: http://www.scdigest.com/ASSETS/FirstThoughts/10-08-19.php?cid=3672

ANALYSIS: For the sake of discussion, let’s assume that a company takes the position that any potential supply chain fallout from an Israeli attack on Iran’s nuclear facilities would be minimal.   However, for good measure, we will also deem that the same organization may take the proactive step to have some critical inventory levels increased as a part of its overall risk management strategy to mitigate any impact that may materialize.  These steps, while prudent, could potentially result in an unintended, unanticipated and often overlooked outcome: the sudden noncompliance of a supply chain member due to its efforts to produce at a level beyond its normal capacity.

Suppliers are masterful at balancing available resources to achieve the desired production outcomes. Yet, a common oversight on the part of many is a failure to consider or acknowledge whether extending themselves to maximum output levels – to satisfy an imminent and unexpected demand – will place them at odds with contractual obligations or regulatory requirements. A supply chain member’s compliance failures can have detrimental effects to its upstream customer. When viewed through the lens of a company’s stakeholders, the circumstances that set the wheels in motion to create the noncompliance in the chain become irrelevant. For this reason, it is critical that a company continually executes the risk management protocols that it has in place to protect its value.

What steps should a customer take to reduce the risk of noncompliance on the part of a supply chain member?

• Be mindful that a conscientious supplier will always seek to say “Yes” to a request to deliver increased goods or services – particularly when the request comes from a key customer. The best thing that a customer can do is use the Predict. Plan. Perform.™ process in advance of event-driving decisions that ultimately flow to its suppliers. This approach will allow an opportunity for discussions with each supply chain member that will potentially be impacted by the events to come.

• Make a direct inquiry as to whether a supplier has considered all compliance ramifications associated with a sudden adjustment in production/service levels. Such discussions may be a part of the standard business process when time is a luxury. However, when changes are made within a narrower time scheme, these critical discussions are often neglected.

• Know that the failure of a critical supply chain member tops the chart of the Five Common Failures encountered in a crisis or disaster. This typically occurs because of an absence or weakness in controls that would allow a supplier to prevent or overcome the impact of an event. Given this, it is advisable that a customer maintains insight into the vulnerabilities of their supply chain and ensures that a supplier is positioned to meet any sudden changes in demands without raising the risk levels for all concerned.

--Gertie Knox, Firestorm franchise principal

Data security/privacy

HEADLINE: Accessing Data While on Vacation Risks Corporate Security: CREDANT

SUMMARY: A survey by CREDANT Technologies found that more than half of workers vacationing overseas remain in contact with their corporate data, which increases security risks. Among 1,000 office workers in London, a whopping 65 percent said they remain in contact with their office, check email accounts, and text to ensure things stay on track during their absence. A straw poll among office workers in San Francisco and New York mirrored the UK findings.

STORY LINK: http://dns.tmcnet.com/topics/internet-security/articles/94527-accessing-data-while-vacation-risks-corporate-security-credant.htm

ANALYSIS: As it is illegal in some countries such as China to host secured networks that the government can't access, it is best to perform a complete backup of all data stored securely in the country of origin upon your vacation, bring only strictly essential information on a virgin computing device, and check the encryption/decryption laws of each country -- especially China, France, Greece and Ireland.

Workers vacationing in different parts of the world must be ready to provide their encryption/decryption keys upon going through customs, as there are different international data ownership laws. For instance, in certain African countries and China, all data is owned by the government -- including the e-mail communications or documents exchanged from those sites and travelers are expected to provide keys upon entry. As national patents do not have jurisdiction over data taken to other countries (even when created and managed in another country), it may be best for vacationers to forego performing business activities as the cost of lost intellectual property may severely penalize an enterprise's growth. There's a growing chance of immediate data loss, infection and on-going breaches that it could become too costly for your organization in the long run.

It is best to perform ongoing equipment inventories and data valuations so that you can proactively protect corporate assets, establish educational programs for all communities including board members, employees and contractors, offer a pool of vacationing virgin computing devices, and ensure that your organization proactively mitigates business-critical data breaches and loss. Additionally, if some staff works from countries with stronger data privacy requirements (refer to www.informationshield.com/intprivacylaws.html); your organization may not have the option to carry certain data out of specific geographical areas -- particularly Scandinavian countries. Therefore, it's best to develop consistent vacation policies within an HR employee handbook, as well as include them as part of your corporate risk assessment, audits and enterprise security/privacy plans.

--Anyck Turgeon, Firestorm Expert Council member

Economic crisis

HEADLINE: Recovery in Danger as Firms, Homebuyers Cut Back

SUMMARY: Companies cut back last month on their investments in equipment and machines and Americans bought new homes at the weakest pace in decades, sparking renewed fears of a double-dip recession. Orders for durable goods fell at the steepest rate since January and business orders for capital goods took their sharpest drop since January 2009. New home sales fell 12.4 percent from a month earlier to a seasonally adjusted annual pace of 276,600, the slowest on records dating back to 1963.

STORY LINK: http://www.cnbc.com/id/38849031

ANALYSIS: These are not the best of times and this is not an optimistic commentary. Be warned.

The run of economic news this week has been consistent, and negative - save comments from our intrepid Vice President. There is worry we are headed for a "double-dip" recession, although I could argue we haven't really had anything approaching a real recovery to dip back from. 

There is an old saying that the military spends its energy preparing to win the last war fought. To a large extent our economic generals have done the same thing. The key driver of our economy has been consumer spending. Fueled by credit, an expanding job base, rising asset values (especially home prices) all buoyed by a product-driven (rather than credit driven) financial industry that built markets on weak and shifting sands, consumer spending powered our economy. The collapse in housing, the severe contraction of credit (including the increase in savings rates) and the consequential reduced spending for things like durable goods has caused this Great Recession.

It has also caused the responses to be focused on these segments of the economy as the solutions to our problems: a bad housing market means you offer tax incentives and mortgage forgiveness; sluggish spending means you lower interest rates or provide a tax incentive for automobiles; lower consumption means you put more money into people's hands with Stimulus Packages, expanded unemployment benefits, and the like. These actions will raise consumption and therefore lower unemployment because companies (builders, washing machine manufacturers, retailers) will hire back workers. But what happens if you give an economic stimulus party and no one comes?

We have too many homes on the market to be sold. That is stifling new home sales, which stifles construction. Companies are managing to the bottom line exceptionally well, but the top line -- sales -- is going nowhere. So they will not hire new employees. State and local governments are struggling with lower tax receipts, budget cuts, and pension plans they cannot afford. Washington has done nothing to address structural issues - the mortgage market, the huge debt, entitlement programs, etc. Despite the significant achievements of this administration in passing healthcare, the stimulus, saving the auto industry, financial regulation, there remains a great deal of uncertainty about the future, and there is a growing realization that the consumer is NOT going to be the engine that powers us going forward. 

We need to do several things at once, all of them painful, but the first is to acknowledge that our economic life has changed -- the "new normal" as Mohamed El-Erian describes it. We need to have a significant debate on the role of government in our economy. Our consumer-driven economy needs to give way, or at least significantly shift, to an export-driven economy. We need to start making as many "things" as we make "ideas" and export them both. Note the success of Germany and note the success of our aircraft manufacturers. This along with many other things will provide for a recovery, but it is not going to happen overnight. 

--Ted Hansen, Director, Firestorm Expert Council

Preparedness groups

Join Firestorm’s LinkedIn groups and help build a Culture of Preparedness for your family and organization:

DISASTER READY PEOPLE: http://www.linkedin.com/groups?gid=1914314&trk=myg_ugrp_ovr

WORKPLACE VIOLENCE: http://www.linkedin.com/groups?gid=1898572&trk=myg_ugrp_ovr

COMMUNICABLE ILLNESS: http://www.linkedin.com/groups?gid=1899278&trk=myg_ugrp_ovr

SWINE FLU: http://www.linkedin.com/groups?gid=1921222&trk=myg_ugrp_ovr

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