Midwestern soybean farmers and Silicon Valley hi-tech companies are miles apart, yet both currently face a common supply chain crisis with limited options: their high dependency on China. Could better contingency planning have helped both weather this storm?
Several years ago, I outlined some simple risk management practices in World Trade 100[1]. These seem apropos today, given how the current US-China trade spat has uncovered global supply chain vulnerabilities for companies in a wide range of industries. The old adage about a rock-solid legal contract also applies here in the case of a risk management strategy and plan; that is, you don’t need it until you do. Then if you don’t have it, you can only wish you did.
The imperative to get serious about risk management has only strengthened. The good news is that the basic risk management practices I outlined earlier remain very applicable. They have become even more accessible and powerful with newly-available software tools and data.
In this Brief, we refresh our view of the basic elements of contingency planning, a simple yet powerful approach to managing supply chain risks. We also suggest actions that business leaders can take to start or strengthen their companies’ ability to effectively manage risk proactively rather than reactively.
Five contingency planning strategies
In my earlier article, I noted how five contingency planning strategies helped airline pilot Chesley “Sully” Sullenberger turn his 2009 emergency landing in New York’s Hudson River from a failed flight into a soaring success, thanks to his skilled response. These strategies apply directly to the broader business world, where disasters and disruptions loom as well.
Basic strategies
- Have a plan. Be prepared and anticipate the kinds of events that might impact your business. Then assess the risks associated with these events. This is the heart of contingency planning: What might happen? How bad would it be? What can we do if it happens? Involve key internal and external partners and stakeholders in the development and deployment of these plans. Be sure to revisit the plans periodically or when changes occur to your business operations.
While comprehensive contingency plan rehearsals typically focus on hazardous and life-threatening event scenarios, supply chain disruption contingency plans can be routinely tested in a “conference room simulation” by asking your key managers to describe specific actions they would take should one of the events occur. And during site visits (to your own and suppliers’ facilities) ask to see a business continuity plan for a power outage, labor disruption, or departure of a key manager.
- Maintain visibility. It’s far easier to take appropriate action during a disruptive event with clear and granular visibility of the situation. Acquiring timely knowledge of the event when it occurs, not hours or days later, is basic. The good news: There are more options than ever to increase the visibility of your supply chain on a real time basis, particularly with newer developments such as blockchain[2] now being piloted.
- Leverage decision support tools. The same decision tools that help you design a supply chain can also be used to evaluate “what if” events and plan optimal actions for each. Or these tools can be deployed in real time to evaluate options to re-route freight around an unexpected port closure or source parts from an alternative supplier in Vietnam or India, not subject to increased tariffs on Chinese manufactured goods.
- Backup routine operations. This can be as simple as ensuring that you have a backup plant, supplier, carrier, port, shipping route or warehouse to keep your supply chain humming when one link unexpectedly fails. What about a backup for a key manager? Don’t overlook employee succession plans as a key component of contingency planning.
- Learn from prior experience. Your company and its managers represent a wealth of experience. While supply chains have evolved and advanced over the years, the kinds of disruptions are not entirely new. Over-reliance on a single customer or supply source (e.g., China for soybean farmers or hi-tech manufacturers) constitute teachable moments year after year for both contingency planning and risk diversification strategies.
Resistance to contingency planning typically stresses how the future is unknowable and that it is impossible to anticipate all that can go wrong. True enough, yet many higher-likelihood events can be grouped for planning purposes. For example, a supply disruption—whether due to a quality problem, a plant fire, new import tariffs or even a negative social network posting—could trigger a similar contingency plan whatever the specific cause.
Actions
Managers should:
- Integrate contingency planning into their company’s overall risk management programs.
- Review contingency plans as part of business operations and strategy meetings.
- Require your suppliers and partners to undertake contingency planning as well.
- Provide your managers with the training and tools to improve planning, visibility and response to disruptions.
Investors should:
- Evaluate existing contingency plans and risk management programs at target companies.
- Understand supply chain pinch points and areas of high reliance on only a few suppliers, customers, people, trade lanes or locations.
- Assess the mostly likely disruptive events and risk mitigation options, as part of M&A due diligence.
- Ensure that key executive succession plans are in place, covering emergency as well as long-term transitions.
Concluding remarks
These five contingency planning basics are not new, just underutilized in our view. We are now commemorating fifty years since the first moon landing and safe return home of Apollo 11. When asked about his thoughts while orbiting the moon waiting for the return of the lunar module with Neil Armstrong and Buzz Aldrin aboard, Michael Collins, piloting Apollo 11’s command module, said that he had around his neck a packet containing 18 contingency plans should the Eagle’s return not go to plan: “What happens if they veer this way, that way, the other way.”[3] Plans don’t need to be overly complex — simple plans (even ones that can be worn around one’s neck) are better than no plans. Now is the time to get started.
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Contact us to explore how we can support your strategic, operational, and investment needs: info@newharborllc.com.
Dave Frentzel is a partner at New Harbor Consultants. Dave brings 30 years of management consulting and hands-on executive leadership experience to improve business outcomes. Prior to joining New Harbor, he held various senior positions at 3PL and supply chain technology companies. Dave has extensive global management expertise, having lived and worked internationally. He helps companies with their global go-to-market, organizational, sourcing, manufacturing and supply chain strategies and operations.
[1] “Five Strategies for Better Contingency Management,” World Trade 100, September 2013
[2] See “Blockchains & Supply Chains”, February 16, 2018
[3] Apollo 11 Special Issue, page 8, The New York Times, July 14, 2019