The "Oops!" factor
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.
Although it is sometimes advantageous to use just one supplier for a particular component, you need to consider what happens if some event temporarily cuts you off from that supplier. It can be advantageous to increase the number of suppliers you deal with -- and to spread them out geographically.
Diversify transportation modes.
Economics usually dictate a dominant mode of transit. However, anticipating that there may be times when your dominant mode is temporarily at risk or out of commission, it is always good to know you have an alternate mode you can lean on -- and to routinely use that mode for a small portion of your shipments so it's been tested. This also applies to carriers.
Although the Asia-to-West Coast route gets your goods to the U.S. quickly, many companies are finding the Asia-to-East Coast option is a viable one for a portion of their goods.
Diversify both in terms of where you make or source goods and where you store your inventory. Many contingencies are strictly regional in nature. Having the ability to access your inventory at several locations could give you an advantage over competitors who are less prepared.
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:
The more vigilant your company is about this critical function, the less attractive it becomes to terrorists or criminals looking for an easy mark -- and the more secure we all will be.
as another area that can stand tightening. An effective safety program can ensure your employees continue to operate sensibly if a disaster or unforeseen situation occurs. Safety training is all about living with the possibility of things going wrong. Training employees to work safely could prevent major accidents that become contingencies.
Tightening your communications.
Clear and consistent lines of communication not only help prevent misunderstandings that can lead to contingencies, they also enable you to activate and convey your Plan B quickly and efficiently to employees and vendors. Just as important, they enable you to notify your customers about any temporary lapses in service a contingency will cause.
Vendor management standards are also beneficial, especially for vendors you rely on quite heavily. If a contingency strikes these companies, it has also indirectly struck yours.
Tighten your overall supply chain through better integration. The silo or island approach to logistics -- where each individual location or function is responsible for its own performance -- is no longer a useful model in today's world, especially not as supply chains become more global. No matter how many locations you operate or how many logistics providers you use -- or how close together or far-flung they are -- it is vital that you have quality information systems that tie them altogether and someone who's responsible for acting as their integrator.
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