Remember the Suez Canal blockage in March 2021? When the 220,000-ton Ever Given vessel grounded global trade to a halt for six days, causing billions worth of goods to be delayed across the globe. Delays that continued to be felt for up to 60 days after the Ever Given was freed. While delays caused by the stricken vessels are not common, they incident highlights the need to have contingency plans in place. These actionable and defined contingency plans deal with the unexpected delays within supply chains and minimize the negative effects disruptions cause.
Easy right? Well, there's an art to crafting and perfecting a suitable contingency plan for any business. An art that involves the significant collection of data designed to answer all of the big ‘what if' questions.
So, how exactly does crafting a suitable contingency plan within a supply chain work? What are the important considerations that need to be made when designing a contingency plan?
Although contingency plans might seem insignificant a majority of time, there are always risks in business, and there's always something right around the corner that has the potential to cause disruptions. Thus, it is highly important that contingency plans are created, and there are a few key factors that need to be considered when putting one together. These factors being a disruption mindset, data and digitization, and diversification. Each of these key factors will provide a strong framework and foundation to prepare for the outcomes of unexpected events occurring in the future.
It may sound counterintuitive, but a disruption mindset creates an agile and adaptive environment, ideal for contingency planning. Forbes describe it as assuming that certainty is relative, change is inevitable, and all planning efforts are provisional and subject to rapid revision based on new data. The agile and adaptive environment created with a disruptive mindset, removes hesitations and resistance that can come with the idea of change. Thus, providing an ideal platform for the creation of ideas and planning to deal with future changes.
In a digital age, where information in the form of data is everywhere, it’s no surprise to see an emergence in digitisation within the supply chain process. In particular, the increased amount of data available has allowed for the implementation of predictive analytics to decipher data and forecast the future. Predictive analytics being the use of data, statistical algorithms and machine learning techniques to identify the likelihood of a future outcome.
These future forecasts form the basis of contingency plans, based on the analysis of historical data and trends to identify the likelihood of certain events occurring in the future. The aim isn't necessarily to always predict perfectly when the next major disruptive event is, it doesn't have to. Texas based grocer H-E-B began their pandemic planning when the H5N1 virus first appeared in 2005. However, their plans weren't actioned until 2009 when the H1N1 swine flu emerged. But because they had modeled the potential impact of a pandemic earlier, and produced a contingency plan, they were able to deal with the impacts of the H1N1 swine flu.
Don't put all your eggs in one basket. A common cliché? Sure. But the saying highlights the importance of diversification, which has proven to be vital during this COVID pandemic. As global shipping routes and international ports became overwhelmed and inundated with large amounts of traffic, everyone along the supply chain started to feel the impact. Consumers faced lengthy delays in receiving products, manufacturers were unable to access raw materials from overseas suppliers, and suppliers saw transport costs increase whilst also facing significant delays. The cost of sending a container from Shanghai to Los Angeles was approximately $2,000 before the pandemic started. Now, the same route returns costs of up to $25,000 due to the scarcity of shipping containers and increased demand for shipping.
It also meant that businesses faced realities where raw materials were unavailable and alternative supply sources were required to meet customer demand. A need that requires diversity within the supply chains. Without it, customer demand is unsatisfied, and the businesses revenue reflects that.
When crafting contingency plans, it’s also important to consider the end customer to ensure their changes in demand are able to be met. With COVID social distancing measures being introduced, it presented a significant challenge for businesses. One that highlighted the need to understand customers when making contingency plans. By understanding what customers will want and need during a crisis, businesses can gain a better understanding of the changes that need to be reflected in their supply chains. In the example of COVID and social distancing, curbside deliveries replaced traditional brick-and-mortar stores.
It's also important to understand that what customers want and need is constantly adapting to larger market forces too. Therefore, forecasting models need access to accurate, up-to-date, broad, and responsive data. If data inputs are outdated, or incorrectly formatted, the ability to successfully create a contingency plan diminishes.
It's not all doom and gloom though, contingency plans aren't always necessarily designed to plan for negative events. They can be used to plan for success too! In scenarios that increase product popularity, such as the case of Zoom, a contingency plan for success may have involved dealing with increased revenue and traffic by hiring more staff. Thus, allowing for businesses to fully take advantage of their increased success.
Whilst not everyone may be enthralled with the idea of planning for contingencies, it is a necessary part of business. The importance of having plans and processes in place to deal with unexpected events is not to be underestimated. A strong contingency plan is one designed to protect critical resources, minimise interruption, and provide a clear path forward in new environments. It is also one that is continually updated with innovative ideas and contains elements of flexibility that allow for adaption when required. With the prospect of an increasingly uncertain future, whether or not a firm has planned for unexpected events may well be the defining moment in their ultimate success or failure.