Why Include a Contingency Plan in Your Sourcing Strategies?
Following the devastating 2011 tsunami in Japan, Sony suffered a disastrous worldwide sales slump because of its failure to have a backup sourcing plan in place. Sony Mobile’s VP of Engineering and Materials Management, Patrik Jansson, revealed that the “cost of not being prepared is massive.” The incident has prompted companies big and small across the globe to re-examine and re-evaluate their supply-chain management and rethink their contingency plans for unexpected emergencies. Contingency planning extends beyond natural disasters; it also includes disruptions like production delays, below-standard products, supplier errors, and bankruptcies. Given the unpredictability of such things, it is crucial for businesses to incorporate contingency planning into their “normal” mode of operation.
In order to create a working emergency backup plan for your company, first assess your risks with a thorough evaluation of all your business-critical operations and departments. If needed, enlist the assistance of a risk analyst and identify potential threats and possible disruptions. Although this list of possible hazards may be long and overwhelming, you will next need to analyze the impact of each possible risk and figure out the probability of each actually taking place. Only then can you start to prioritize and develop plans to help your business survive in the face of adversity.
When elaborating on your emergency back-up plan, it is important to remember these key factors:
- The main goal is to maintain business operations.
- Identify the trigger, or the point at which your company will put the contingency plan into action.
- Outline the needs of every employee in maintaining operations and ensure that there is an adequate plan in place to meet those minimum requirements to keep the business running.
For companies that rely on suppliers and other business partnerships, including transportation, it is absolutely crucial to work with them to ensure that all parties are willing to collaborate in times of duress. It is also good to test them in emergency situations in order to accurately assess their preparedness for emergencies.
For the two more common sourcing emergencies, production delays and shipment of products that fall behind the agreed timeline, communication is key. (You may be interested in: How to choose the best shipping company?)
For delays, immediately find out from your supplier when the products will in fact arrive. For inadequate products, review the order specifications with your supplier to see where the gap is. A good supplier will be willing to work with you to correct the problem. If the supplier is uncooperative, then it might be time to look for a new one. If either situation affects your customer purchasing experience, communicate with them that unforeseen circumstances have caused a delay. Tell customers the company is doing everything to correct the matter and offer customers a special discount for the inconvenience. It is also important to note that both situations can be avoided with good prevention tactics. Discuss penalty clauses with your suppliers to ensure that your business will be compensated in some way for supplier errors or failures. Make sure that there is a clear agreement in place and that there is a level of trust in the relationship.
Once the contingency plan is created and in place, it’s important to keep it relevant. Make sure all employees, new and old, are aware of the plan and their role in it. Offer training so that employees will know what to do should an emergency arise. Conduct disaster drills to ensure that the plan and training are up-to-date. Reassess the plan periodically. Review and revise your backup plan as your business grows and evolves.
Creating a well-thought-out contingency plan may be a challenging and costly task for many companies, but the price of negligence and failure to have a back-up plan in place is often a cost most businesses can’t bear when the unexpected happens. It may be difficult to allocate time and resources to emergency planning, but being proactive in the short term can ultimately save your business in the event of an unforeseen disaster.