While a strike was avoided, it’s a stark reminder for BC professionals to diligently monitor third-party risks and have response plans in place.
By Continuity Insights Editors
In July, the United Parcel Service (UPS) narrowly averted a massive strike with their union, which would have had massive rippled effects across the industry. Even though a strike was averted, it still cost the company $200 million in sales. Some of that is the result of volume being diverted, as companies that rely on UPS for package deliver sought out other options.
Now, compared to the downtime the company would have experienced if a strike had gone ahead, this is a much better scenario for UPS, its stakeholders, and its customers. For UPS, this is a core operational risk, says Alex Toews, Director of Product Management for Fusion Risk Management. As such, the parcel service had to prepare non-union workers to manage warehouses.
The UPS business interruption and downtime would have impacted their vast array of customers, many of which rely on UPS for their own organizational processes. However, CBS News reported that many customers of UPS, even ones that heavily rely on the package company for their own services, did not switch carriers and felt confident that a strike would be avoided. But, as we consider this event from a business continuity standpoint, we have to consider what would have happened if a strike took place.
The Challenge For Third Parties
Business continuity professionals know the importance of vetting third-parties thoroughly when it comes to trusting them with a key role in your organization’s operations. As a reminder: “Identify who people are, and have a process in place to vet them,” says Toews. “See where you need to pay attention in the first place before setting a contract and set clear expectations. Proactively do your due diligence before making an agreement with a new business.”
Beyond the initial agreement, it’s critical to fully understand third-party vendors, and how they operate. “Decide who your most critical service providers are and continuously monitor them,” says Toews.
Now, as companies work with long-time established companies that have made a name for themselves in their respective industries, like UPS, it’s easy to trust that they are strong enough to weather any storms they encounter. “Depending on the maturity of the organization, there may be a sense of security with companies,” says Toews. “But, Black Swan events can happen—and for some organizations, their worst-case scenarios come to pass.”
It can be a challenge for anyone to navigate a Black Swan risk, especially if it’s one that would have a wide-ranging systematic impact. It’s also tricky for senior management and BC professionals: how to do you justify spending time and money for something that very likely won’t happen?
“From the perspective of the company facing a complete system shutdown, it needs to consider what clients are expecting them to do at the base level, and find a way to deliver on that promise as best as possible,” says Toews. He recommends breaking down third-party vendors into different tiers to decide which third-party risks need to be prioritized. “If these companies experienced a prolong period of downtime, what would you do?”
Opportunities For Competitors
When one competitor is down, it presents massive opportunity for the others. Toews believes that one question UPS competitors may have asked: “Do we have the agility to capture the new market share?” He also highlights the importance of seeing if this is wise. As a business, you want to provide the same high-quality level of service to all customers – is this something that can be handled with an influx in demand? Another question as an organization: what is your capacity? As a business, you have to avoid stretching your operations too thin that things fall through the cracks and mistakes are made.
However, according to Toews, the pandemic ushered in an entrepreneurial spirit as organizations had to rapidly apart to changing conditions. This is the silver lining to systematic disruption—it creates new opportunities and potentially leads to new partnerships.