While organizations cannot avoid the unexpected, supply chain professionals can develop a “just in case” playbook with contingency plans to activate when alternatives are needed.
A contingency plan spells out the actions to take, such as reallocating money, people, equipment, and other resources, when certain triggering events like crises or disruptions occur. Given the varied nature of potential disruptions that can impact supply chains (including labor shortages, geopolitical conflict, changing government regulations, price hikes, transportation issues, and product availability), organizations would be wise to build out a playbook that has more than one scenario for their contingency plans.
Here are two enabling activities APQC recommends for supporting a mature contingency playbook.
Supply Chain Control Towers - A significant investment for any organization, an effective supply chain control tower can provide organizations with insight to understand how different functions across their supply chain impact each other. For example, a planner’s request to expedite shipment of a delayed customer order might conflict with the logistics team’s goal of reducing operating expenses. Intelligence from the control tower can show the potential loss of profit versus the cost of expedited shipping.
Control towers provide more than visibility. They also offer real-time intelligence to change processes and identify opportunities to build resiliency through different sourcing arrangements and contingency plans. Strategically designed dashboards can help supply chain professionals compare planned and incoming shipments against consumption and inventory, and signal discrepancies between supply plan projections and current stock levels.
Continuous Global Risk Monitoring - It is also important for supply chain organizations to maintain continuous awareness of potential disruptions in the external environment. When major disruptions hit, the difference in response time to activate contingency plans and move materials, sites, commodities, and products as needed can spell the difference between success and failure for an organization.
In line with the old saying “time is money,” response time does have a demonstrable impact on the total cost of procurement within organizations. Organizations that report the ability to respond to disruption within minutes spend $19.79 per $1,000 purchases on procurement, while those that take one month or longer to respond spend $23.32 per $1,000 purchases. This means, for example, that for every billion dollars in purchases, the slowest organizations will end up spending more than $3.5 million dollars more than the fastest-to-react organizations.
NEXT STEPS
To improve your organization’s level of preparedness and resilience:
- Assess where you are on the maturity scale in terms of contingency plans, crisis response teams, and resilience strategy.
- Determine ways to move from reactive response to dynamic capabilities and embedded resilience.
- Incorporate tools such as supply chain control towers and active monitoring of global risk into your risk management processes.
Learn more about the current state of readiness and contingency planning maturity levels in APQC’s Developing a Contingency Playbook for Supply Chain Risk.