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will be affected, and what problems you’re going to have. I
cover some of these new software applications in the book.
QYou talked a few minutes ago about how while the risks are higher today, we have also learned a lot. What have
we learned over the last 10 years that we’ve been able to put
to work to help mitigate risks?
AIn terms of things that you can point to, such as an earthquake in an area that’s prone to quakes or floods,
you have to prepare for things that have happened before
and can happen again. What is the communication plan?
How should you notify whoever it is: the customers, Wall
Street, suppliers, whatever? Who should be notified? Who
should be involved in making up the plan? How do you
respond?
The other side is the completely unexpected situation
where you don’t know what to do beyond general resilience
measures. For this, you first of all have to have an emergency response operation and you have to have all the communications lines. The number one thing is what I said: You
have to know who to call. Who should be the people to man
these emergency operations? In a manufacturing company,
it should be basically two functions, supply chain management and engineering.
Supply chain management should focus on inventory—
looking at how to acquire more supplies where needed and
seeking alternative suppliers. Engineering should look for
damage solutions. Can we replace a component with anoth-
er part? How do we qualify another part?
In general, the response should be two-pronged and
involve two separate teams. One team should deal with
the people. What is the impact on people? How do we find
everybody? How do we deal with our suppliers? The other
team should deal with business continuity issues. Because
otherwise, depending on the nature of the team, they pay
too much attention to one or the other.
QLet me go back to risk assessment for a moment. You talked about Intel and how deeply it had to dig to find
out where its minerals come from. How does a company
find out the risk deep in its supply chain, in its tier three,
four, or five?
AOh, there was talk about a tier 12 or something. Anyway, Intel learned that four metals used in electronic products might be “conflict minerals,” metals that
have been mined under conditions of coercion and violence, and mobilized a team to ensure that its operations
were “conflict free.” The first question was, “Are we using
conflict minerals?” But nobody knew. So the company
started going backward in the supply chain, and it realized
that it had to go back to about level five or six. Beyond this,
you cannot tell where a material is coming from because
the supplier gets it from multiple sources and just mixes it
all together.
Intel decided to focus on the smelters and make sure the
smelters’ brokers only bought from approved mines. The
thought was the company was not going to buy anything
from mines in the Democratic Republic of Congo, but that
would just throw hundreds of thousands of people out of
work in a very poor country. So it couldn’t do that.
Then it went to the smelters and tried to convince them
to do it, but the problem is, as big as Intel is, it is not a very
big customer of the smelter. And the smelter says, “I am not
selling to you. I’m selling to some broker who then sells to
another customer, who sells it to some other company.” So
Intel put together an industry consortium [the Electronic
Industry Citizenship Coalition]. And it paid the smelters to
qualify certain mines so it knew where minerals were coming from. It took Intel years, by the way.
QOne of the arguments you make in the book is that by looking at your risk, by preparing for risk, you actually
strengthen the entire enterprise. Expand on that a bit.
AFor an example, there is Intel. It had to map its entire supply chain. Knowing who the people upstream are,
you not only get risk protection—the sense that if something happened to one of them, you know what the implications are—but you also learn more about what’s going on in
the supply chain. You start understanding your own supply
chain a lot better, which always brings good things.
