In recent years, even before the events of September 11, contingencies have gone from being distant possibilities to distinct realities. And when an exception occurs in today's global supply chain, it's likely to occur in an area remote from the management team that will have to cope with it.
Though you can't control the fact that exceptions happen, you do have a measure of control about how dramatically they will affect your supply chain -- especially if you expand your view of what a contingency plan means. According to APL Logistics (http://www.apllogistics.com), it's essential that companies adopt a three-point plan: diversify, tighten and plan.
Most companies focus contingency plans on what to do after something goes wrong. Successful contingency planners think of “Plan B” in more proactive terms, doing what they can to tweak their supply chains before an exception or disruption occurs. That way, if a setback does happen, it will impact only a small portion of the supply chain, not the whole process.
One way to do this is through diversification. Any prudent investor understands this strategy. Common sense dictates you don't put all of your eggs in one basket. But in the case of international sourcing there are several kinds of eggs -- and several kinds of baskets -- to consider:
Diversify your suppliers.
Diversify transportation modes.
One word of warning: There is a fine line between diversification and fragmentation. While there is safety in numbers, it's important not to become so spread out and decentralized that you don't have full control of your inventory and processes.
Another effective strategy is "tightening." It sounds like tightening runs counter to diversification, but the two techniques can and do co-exist successfully because the tightening referred to here relates to the way you operate and how you run your business processes.
While contingencies affect both well run and poorly run businesses, exceptions are more likely to hit and substantially damage supply chains that exhibit noticeable operational problems:
Tightening your communications.
Although diversification and tightening can be very effective contingency management strategies, they do not eliminate the need for a formal, step-by-step supply chain contingency plan.
This contingency plan must begin with a realistic assessment of what your supply chain's breaking point is.
The more specific you can get about what each lost minute, hour or day costs you, the more definitively you can assess the risks, benefits and expenses of various options. If you know, for example, that a lost day of production will cost your company several million dollars, it could make the prospect of chartering 747s to carry emergency supplies much more palatable.
You also may wish to put together several different plans instead of one generic, catch-all plan. Bear in mind, different kinds of contingencies call for different actions. An inventory shortage created by a strike calls for a very different set of solutions than an inventory shortage created by an earthquake.
These plans should be accessible to key logistics personnel, and they should be well versed in who's authorized to begin implementing the plan and under what circumstances. At the same time, they should in no way dominate your overall logistics landscape. Despite all of the things that can and have gone wrong with supply chains, the reality is that contingencies are still the exception to the rule.
While you may wish to change some of your supply chain management practices in light of recent events, it still doesn't make good business sense to base your global logistics strategy on worst-case scenarios.
There's a fine line between pragmatism and pessimism. The key is finding out where that line exists for you. LT