Sensitivity is also an example of vulnerability in BP's supply chain. Addressed earlier was the effect of the Spill on the ability to obtain natural gas and since a carefully controlled environment is necessary to obtain natural gas, at the risk of marine life, sensitivity is a risk to BP's supply chain. Finally, because BP's customers and suppliers are subject to outside forces and external barriers in terms of availability and prices, customer/supply disruptions are also vulnerability in BP's supply chain.
4) the Impact of Disruption and Other Harm on BP's supply chain could have a tremendous overall impact for BP depending on which portion of the supply chain is affected. For example, as mentioned earlier, if BP's oil products are considerably more costly than its competitors, they are likely to lose the consumer to the competition. On the other hand, if BP's shipping link in the supply chain is affected, this could a domino affect ultimately affecting the recipient of the goods. Because numerous links comprise BP's supply chain, it is unlikely that a disruption in the supply chain will be without effect in some way.
5) a Plan of Improvement in BP's supply chain would begin with noting where the specific vulnerabilities are in BP's supply chain and increasing BP's capabilities regarding each vulnerability or increasing the company's capabilities in general. This is referred to as establishing a "Resilience Framework" and will be discussed in detail below. However, for the purposes of this section, vulnerability was identified in terms of the turbulence in the oil and market prices. Hudsal identified a list of factors that influence a company's capabilities. Among those that would benefit BP in offsetting the vulnerability of the turbulent market are: Anticipation -- working to anticipate future increases in oil prices, collaboration with other entities for a mutual benefit, increasing its financial strength, and increasing its efficiency to produce outputs with minimum resource requirements. Hudsal (2010).
A Major Disruption and Its impact the Supply Chain's Economics and Operational Performance
The Oil Spill is an example of a major disruption on BP's supply chain. However, the impact on the supply chain's economics and operational performance are still be researched. Potential effects on the operational chain include -- an increase in the cost of crude oil and oil supplies, a diminished availability of natural gas due to threat on marine life.
Business continuity/contingency plan that would make the supply chain more resilient
Resilience in a supply chain is defined as "the ability of a system to return to its desired state after being disturbed." Christopher and Rutherford (2004). In addition, Sheffi and Rice in their article state that "An organization's ability to recover from disruption quickly can be improved by building redundancy and flexibility into its supply chain." Sheffi and Rice (2005).
Pettit, Fiksel, and Croxton cite to four key factors that comprise a company's supply chain resilience: (1) Resilience can be built into a system in advance of a disruption (i.e., re-engineering), (2) Resilience requires a high level of collaboration to identify and manage risks, (3) Agility is essential to react quickly to unforeseen events, and (4) the culture of risk management is a necessity. Characteristics such as agility, availability, efficiency, flexibility, redundancy, velocity, and visibility were treated as secondary factors. Pettit, Fiksel, and Croxton (2010).
An Example of a Resilience Framework for BP
1) Use the Oil Spill to bring success. This is building a system of resilience into the company in advance of the results of the disruption. For example, BP has hired millions of workers to clean up the Oil Spill. It has hired legal representation who in turn has hired additional assistance to process claims of businesses claiming to have lost income. BP has a fund set aside to compensate those businesses and employers in the Gulf Coast who claim losses as a result of the Spill. Through these three actions, BP has created opportunities from a potential disaster. It has created thousands of jobs for individuals who did not have them prior to the spill and BP has helped thousands of individuals by compensating them for their losses. This increases the resilience of BP because it fuels into the economy.
2) Collaborate with organizations for Risk Management Assessment/Identify
Vulnerabilities and Capabilities
BP's vulnerabilities will be determined base on collaboration with agencies outside of the company to accurately assess risks and validate risks. For example, BP could hire focus groups that are familiar with BP's operations on different levels and illicit research from them regarding the company's vulnerabilities. It is important to note that when assessing vulnerabilities and creating capabilities to offset the vulnerabilities, BP should strive for a balanced approach. In other words, too few capabilities in response to the vulnerabilities will result in the excessive risks, while too many capabilities in proportion to the risks will result in eroded profitability as the company will expend profit on a perceived rather than existent risk. Pettit, Fiksel, and Croxton (2010).
BP's vulnerabilities as a result of the Spill were addressed in detail earlier and are: 1) Turbulence as a result of the unpredictable oil prices, 2) Connectivity to the extent that BP relies on outside sources in its supply chain. 3) Sensitivity is also an example of a vulnerability in BP's supply chain since a carefully controlled environment is necessary to obtain natural gas, at the risk of marine life, and 4) Customer/supply disruptions are also a vulnerability in BP's supply chain because BP's customers and suppliers are subject to outside forces such as the market and the economy.
The same focus groups could then be used by BP to obtain information on the capabilities. Actual capabilities that have been established by BP in the past will be presented here as an example of the culture of risk management that BP established within its infrastructure -- each of the capabilities established in the past by BP are still relevant to address each of the current vulnerabilities:
1) Increasing its capabilities by targeting the benefits of achieving 'virtual integration.' Through virtual integration BP will optimize hydrocarbon flows across the value chain, from the upstream supply source through to the downstream consumer, calling on the company's knowledge of energy markets, asset operations, logistics, trading and risk management, and control systems. Knott (2005).
2) Permitting IST, a division within their own company, to manage inputs and outputs to the company's refining, gas and power facilities. These facilities also take significant positions in the world's trading markets in support of BP's businesses. Knott (2005).
3) Make an investment in leading edge digital and communications technology -- the DCT side of the business. The investment is in the shape of packaged and bespoke software applications and systems. The goal is to create a world class energy supply, trading and optimization capability which is second to none. Knott (2005).
4) Maintain the capability to manage energy/price risk -- creation of IST will help to manage the financial risk. Knott (2005).
5) Continue exploiting new global energy markets through creation of this new banking investment system. Knott (2005).
Assessment of Risks/Capabilities and Analysis of Competitive Advantages
In its Resilience Framework example, BP identified four risks and five capabilities. This is a balanced approach that will likely not result in increased risk or eroded profitability. The first risk, turbulence as a result of unpredictable oil prices is addressed by the each of the capabilities. For example, employing capability five -- exploiting new global energy markets through a new investment banking system -- will give BP continued options regarding whether to invest in oil if the market is not favorable or to take advantage of a newly discovered market. Through this capability, BP increases its investment options in the midst of the turbulent market while creating a culture of risk management and building a competitive advantage.
The second vulnerability -- connectivity in relying on outside sources in its supply chain -- is addressed by the each of the capabilities. For example, the second capability -- permitting IST a company in their division to manage inputs and outputs of BP's gas and power facilities -- reduces BP's connectivity with an outside organization that performed this service in the past for them. This is important because it creates a competitive advantage for BP by reducing reliance on an outside organization. This reduces the risk to BP as it could reduce financial expenditures, and at the same could result in growth and expansion by BP of its IST division.
The third vulnerability, sensitivity resulting from the reliance on a controlled environment in order to obtain natural gas, is addressed by specifically by the first capability -- increasing virtual integration to optimize hydrocarbon flows across the value chain. With this capability, BP creates another alternative to the natural gas for whose availability has become questionable after the Spill. Hydrocarbon is another form of a natural gas. Again, through this capability BP is operating under a culture of risk management.…