Supply Chain Profitability –Contingency Planning
What It Is
A contingency plan is a set of documents that describe the responsibilities and procedures that must be implemented when unplanned changes or unexpected disasters occur. These risks include natural disasters, fire, building failures, technical failure, acts of terrorism, regulatory issues, labor issues, or other significant disruptions to business beyond a company’s control.
Why It Is Needed
Contingency planning can minimize the effects of an unexpected change or disaster by having staff members fully prepared to react quickly, by eliminating confusion, and by allowing for a quick transition to alternate manufacturing and/or distribution plans that will reduce service disruptions. A well-planned disaster recovery plan will also provide a sense of security, ensure organizational stability, and create an orderly process to return to business as usual as quickly as possible. Developing a formal documented contingency plan has become an important part of operations for any business, regardless of size.
The Process Steps
A contingency plan requires performing a wide range of activities prior to any disaster to properly prepare for the potential disruption in business. Possible scenarios must be identified, economic feasibility must be considered, and support at the highest levels of the organization must be obtained for any plan to be effective. The following is a list of steps required to create and execute a significant disaster recovery plan.
1. Step one is to identify and document the critical operating requirements and customer service considerations for each operating segment of the business:
1.1. Who are the critical customers?
1.2. What are the critical products?
1.3. What labor is required to fulfill critical requirements?
1.4. What inventory levels are required to fulfill critical orders?
1.5. Which are critical manufacturing resources and equipment for key products?
1.6. How long of a shipping delay will customers accept?
2. This is followed by the development of a detailed disaster classification matrix. For each element in the matrix it is necessary to determine a disaster recovery action plan and deployment methodology for catastrophic occurrences to include at a minimum:
2.1. Order processing and billing system backup processes
2.2. Fulfillment by vendors and/or other production locations
2.3. 3rd party logistics providers
2.4. Space-occupancy, labor shifting, & skeleton systems
2.5. Recommended equipment redundancies to support the plans
2.6. Internal and external notification procedures
2.7. Who is responsible (primary and back up) for every action required?
A contingency plan can then be developed to include all detailed procedures to be used during and after a disaster, including backup alternatives that have been determined in previous steps. Specific responsibilities for key personnel must be spelled out, and procedures for maintaining and updating the plan as systems or processes in the organization change must also be made clear. A new contingency-based organization chart may be created, which would include the team members, reporting structures, and departmental functions for each of the key personnel in the organization. Key personnel should be trained in the plan and a practice drill should be done to ensure that the staff is ready to perform should a disaster occur. This structure may look quite different than the current organizational chart. A critical path chart should be in place to continually manage and update requirements for a successful recovery.
The contingency plan provides an understanding of the current and future needs, with concentrated focus on high profit margin items and their implications on infrastructure, storage, throughput capacity, and processes. This plan should be no longer than 15-20 pages, or else it will never be read or used. Key personnel should have a copy of this document at home, along with their assignments, current inventories, and all key phone numbers and other contact information.