Patrick Roberts highlights lessons from Huntingdon Life Sciences.

[Guest guest]

A case study in supply chain vulnerabilities Patrick Roberts highlights lessons from Huntingdon Life Sciences. Note: this article provides general information for business continuity managers. It makes no comment on the morality or ethics of the activities of Huntingdon Life Sciences or the activists that oppose the company. IntroductionEver since ‘It’s a Dog’s Life’ was aired on Channel 4 in March 1997, the UK-based company Huntingdon Life Sciences (HLS) has been the focus of an

unprecedented campaign of violent protests, physical attacks and intimidation of staff. In parallel with this direct action against the company, activists have also targeted a large number of organisations that do business with them: this has ultimately had a much greater effect on the ability of HLS to continue its business. HLS’s unique experience of being on the receiving end of a well planned, concerted campaign to destroy the company by any means possible provides a vivid illustration of supply chain vulnerabilities. This article looks specifically at the activists’ targeting of financiers, suppliers and customers of HLS and attempts to derive from this analysis some general lessons for supply chain resilience. FinanciersOne of the mainstays of the activists’ campaign has been attempts to cut off funding to HLS. The first major blow came in 1998 when Barclays sold its holding in the company. As the campaign

gathered pace, numerous other shareholders – both institutional and individual – withdrew. As a result, HLS became entirely dependent on a £24.5m loan from NatWest bank. The situation gradually worsened over the next two years as stockbrokers and market makers stopped handling HLS shares and finally, in July 2001, the Bank of England had to step in to offer emergency funding and banking services when no commercial bank was prepared to deal with HLS. HLS had gradually become more and more dependent on American funding over this time and in January 2002 it moved its headquarters to the US. Despite the more benign environment in the US the company has continued to experience harassment of shareholders and difficulties in getting brokers to deal in their shares. The ongoing difficulties that they face were graphically illustrated when their planned listing on the New York Stock Exchange had to be cancelled at the last minute in 2005. Whilst HLS’s experience is clearly exceptional, it provides a useful reminder that access to finance cannot be taken for granted. Particularly in the current turbulent environment, it should be remembered that bank loans and other sources of finance may become unavailable at very short notice because of changes in the markets. SuppliersAnother key element of the activists’ strategy was harassment of companies that were (or were believed to be) supplying goods and services to HLS. The following short summary gives a few examples. Despite refusing to comment on whether or not they dealt with HLS, insurance brokers Marsh McClennan came under attack in late 2002. HLS was subsequently unable to secure any insurance coverage and the UK government had to step in as insurer of last resort. Shortly afterwards, in February 2003, HLS also lost its auditors,

Deloitte and Touche. Following a campaign of intimidating telephone calls and emails to senior staff, Deloitte and Touche announced that it would not seek re-election as HLS’s auditors. In August 2004 activists began a campaign against Northgate Information Solutions who ran computer systems for HLS. On the 10th of September Northgate announced that it was no longer doing business with HLS after fake bombs were found under two directors’ cars. Clearly there is a specific lesson for any organisation that may find itself in a situation like HLS’s: don’t rely on your suppliers to stand by you. They are unlikely to risk their own safety and reputation simply to support one of their many customers. More generally though there are important implications when planning for widespread disruption such as a ‘flu pandemic: how hard will your key suppliers exert themselves to maintain a service to you? CustomersCustomers of HLS, including household names like GlaxoSmithKline, have also endured concerted campaigns against them. However, by and large, customers have been noticeably more steadfast than suppliers in standing up to intimidation. A possible explanation is that companies requiring HLS’s specific services have few alternative suppliers to turn to (at least in the UK). This lack of success has led activists to extend the campaign throughout the supply chain to include HLS’s customers’ customers and customers’ suppliers. For example:* In June 2005 an incendiary device was placed under the car of a director of Canaccord Capital who acted as brokers to Phytopharm, who were believed to be customers of HLS; and* In August 2007 activists claimed to have contaminated 250 tubes of Savlon, produced by the pharmaceutical giant Novartis, a long-term customer of HLS and target of

activist attention. Unsurprisingly, Canaccord Capital quickly withdrew their services to Phytopharm. The Novartis example is particularly interesting as it propels the campaign right to the end of the supply chain; i.e. retailers and consumers. No evidence of contamination ever emerged but, understandably, retailers were quick to remove Savlon from their shelves in order to protect their own reputations. Despite the size and global influence of Novartis, it is clear where the power really resides in this particular supply chain. The impact on HLSSomehow HLS has struggled on through all of this but it has not been an easy journey. The direct attacks on HLS have had relatively little impact on their ability to conduct their business and revenues have actually grown over much of this period. However, under relentless attack on their supply chain, their share price has plummeted:

starting from £1.20 in 1997 it fell as low as 2½p in 2001 when their financing problems were at their height. Profitability has also suffered significantly with mounting annual losses which hit £10.9m in 2000. Unsurprisingly, this has resulted in hundreds of job losses. Conclusions and recommendationsThe very term ‘supply chain’ suggests a simple linear arrangement but the reality is in fact much more complex – ‘supply web’ is perhaps a more accurate description. At each point in the web, multiple suppliers are providing similar products and services to multiple customers. Understanding the capabilities, limitations and motivations of your operational partners is clearly vital to ensuring real business continuity. Your key suppliers will, almost certainly, have many other customers and it is important to establish how they will prioritise competing demands if their capacity

should become limited for any reason. It is equally important to establish how much support they are prepared to provide to you (e.g. variation in quantities, flexibility in payment terms) in a crisis. Similarly your customers may well have alternative sources of supply for equivalent products and can easily turn to them if you are unable to deliver for even a short period of time. It is vital to understand the pressures that they are under (e.g. from their own customers) and to discuss how you can effectively work together to mitigate the impact of any disruption to your operations. Patrick Roberts is a senior consultant with Needhams 1834 Ltdpatrick www.needhams1834.com Got a case study that you think we should

publish? Email editor with details. http://pets.Fortheanimals7/join