Every project undertaken in a business has a unique set of risks, therefore when project managers carry out a risk assessment and identify potential threats, a proactive backup plan needs to come into place.

What is contingency planning?

A contingency plan in project management is a defined, actionable plan that comes into force if an identified risk becomes a reality. No one wants their ‘Plan A’ to fail but it is essential to keep a ‘Plan B’ in place when things go differently than the original flow. However, businesses must have an effective contingency plan in place that can address any negative development and ensure business continuity.

Contingency planning is an essential part of effective supply chain management and the overall risk management of your business. By understanding the business needs, implementing a few best practices, and investing in the right tools, businesses can guard against both short and long-term disruptions, improve disaster recovery capabilities and risk mitigation, and safeguard business continuity when it matters the most.

Must-haves for a contingency plan

Effective contingency planning in project management is all about protecting your project resources and helping your business operations move forward during any unforeseen event.

Therefore, when preparing a contingency plan following elements should be taken into consideration

• Pinpoint what specific event or events can trigger the implementation of Plan B.
• In each step of your plan cover- who will be involved, what do they have to do, when it needs to happen, where will it take place, and how will it be executed.
• Ensure that there are clear guidelines for communication and reporting during the implementation of the plan- who will draft and send the notice, and how soon after the incident will it be released? How often updates will be given? How will external and internak stakeholders be notified?
• Regular monitoring of the plan should be done to ensure it is up-to-date.            

How to prepare an effective contingency plan?

If businesses don’t want to get caught off guard if any unforeseen event disrupts the initial project plans then it is essential to prepare an effective contingency plan.

Risk assessment

Identify the most likely potential threats that a project could face. The project manager should do risk assessment by brainstorming issues with his team that might disrupt the project. Once all the issues are identified, establish which of the identified issues are the likeliest to happen and would have the biggest impact on the team’s ability to complete the project. These are the situations that call for contingency planning.

Risk quantification

Once the risks have been identified, the next step is to quantify them to determine which risks would be the most detrimental to the project if they happen. The project manager with his team need to determine the probability of a risk occurring and its severity if it were to occur. The severity impact can be quantified as low, medium, and high.

Identify and ensure that resources are available to respond to specific scenarios

For a contingency plan to be effective, a project manager should ensure that resources are available to respond to the identified and quantified risks if they happen. Taking inventory of the people in the team, comparing their abilities to the one’s that may be required to handle a problem and returning to normal operations is a must.

Project managers should also develop plans and procedures to utilize those resources in specific events. For instance, if one worker is unable to work, which other team member will pick up the slack and what specific task he/she will have to do?

Share the plan with all stakeholders

A contingency plan should be shared with all stakeholders so that they are not only prepared for any contingency but the project team can also benefit from their suggestions. Different members of the team or organization may have expertise in areas that could help make ‘Plan B’ effective if it is to be put in place.

Take feedback and update regularly

Look for any opportunity to update the contingency plan. Having regular updates with team members is essential to see if any improvements can be made.

Conclusion

Depending upon the scope of the project, the planning process can require a huge amount of precision and forethought. Having a contingency plan just in case the original plan fails can be the difference between keeping the project on track and letting it fall apart when an unforeseen event happens.

The bottom line is that risks cannot be eliminated in project management, and having effective contingency planning is the last line of defense against the risk.

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What is network planning in supply chain management?

Supply chain network planning is the process of modelling and building the supply chain to understand the time and costs to bring the goods and services to market within the available resources of the organization.

Effective supply chain network planning can minimize the cost while maintaining a good service level, however, to achieve them both it needs a lot of effort. For instance- there exists an obvious tradeoff between these two objectives-if supply chain requires to maintain a high service level, its system-wide costs will rise, or if the supply chain requires its system-wide cost to decrease- then the service levels need to be reduced. Therefore, balancing the tradeoff is a complex process in supply chain network planning.

Supply chain network plan can be divided into three steps –planning, positioning, and allocation. According to Simchi-Levi et al (2008), network design provides physical infrastructure and coordination for the supply chain.

Planning the supply chain network is a complex yet important process, it includes a set of strategic-level decisions that would impact the future overall performance of a supply chain.

Factors that influence network planning in supply chain management

Rapidly changing consumer preferences, volatile markets, constant ambiguity and uncertainty have made traditional linear supply chains obsolete. These shortcomings are obvious in their inability to meet the needs and keep pace with diverse consumers. Fragmented supply networks and operational inefficiencies that hamper scalability have further compromised the responsiveness of businesses.

Benefits of supply chain network planning

An effective network plan in the supply chain can improve competitive advantage. These advantages help in decreasing the inherent risks of purchasing raw materials and selling goods and services. There are several benefits of supply chain network planning.

Reduces costs

Effective supply chain network planning can reduce costs in key areas such as improvements to your inventory system, improvements to system’s responsiveness to consumer requirements, optimization of storage space for finished goods, eliminating deteriorated or damaged resources, improved relationships with both distributors and vendors.

Increased efficiency

Having the capability to include supply chains, innovate product strategies and integrate logistics can give businesses an advantage to predict demand and make corrective actions. Having a solid supply chain plan will help the companies to adjust dynamically to fluctuations in demand, the short life cycle of certain goods, and emerging markets.

Increased output

Improvements in the supply chain network planning can result in improved output. It results in optimized collaboration and coordination with organizations that handle transporting and shipping, as well as suppliers and vendors.

Increased profits

When companies incorporate state-of-art technologies and better collaboration between various business areas, it will improve productivity and efficiency. Thus, resulting in increased profits for the business in the long run.

Better coordination

Having superior coordination is one of the fundamental features for most successful businesses. When there is a lack of coordination; distributors, vendors, and employees struggle to have an idea about the plans. Effective supply chain network planning can yield a huge advantage of improved cooperation between various entities. Moreover, when businesses open their door to new technologies such as supply chain management software, they can take the advantage of not even having to be in the same location with people to collaborate and communicate effectively.

With improved communication between various areas of business, organizations can have quicker access to accurate reports, forecasts, statuses, quotes, and several other plans.

Eliminates delay

With an effective network plan, businesses can eliminate or lessen delays in supply chain processes. With everyone more aware of their role in the business, issues like logistical errors, late shipments, and hold-ups on production lines can be mitigated.

Conclusion

Achieving an optimal supply chain network planning is not a simple process, but it is vital for the growth of the business. Supply chain network planning includes planning implementation and control of supply chain operations. It aims at finding the best possible configuration so that all possible operations are performed efficiently.

Effective network planning in the supply chain can help the organizations to balance the tradeoff among inventory, manufacturing, and transportation. It also aids in creating a balance between demand and supply under uncertainty through effective inventory positioning and management. Besides that, network planning can balance the available resources to choose the most suitable product sourcing facilities.

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A recent Washington Post report noted that, “More than 22 million Americans have filed for unemployment aid since President Trump declared a national emergency, a staggering loss of jobs that has wiped out a decade of employment gains and pushed families to line up at food banks as they await government help.

The United States has not seen this level of job loss since the Great Depression, and the government is struggling to respond fast enough to the deadly coronavirus health crisis and the widespread economic pain it has triggered.”

Amidst all this, businesses whether small or large are struggling around the world. While there are businesses which have adapted to the work from home model and have revenue streams still open, aviation, hospitality, manufacturing, etc. have virtually come to a standstill. With economies under total or partial lockdowns to contain the spread of the novel coronavirus, supply chain disruptions have become the norm. While bigger cash rich businesses may still be able to withstand this shutdown, smaller businesses will basically be wiped out.

The true impact of this human tragedy will be clear in the months to come, however, one thing is for sure, there will be global economic and financial ramifications that will be felt through global supply chains, from raw materials to finished products.

Though businesses which have been around for some time are not unknown to disruptions, it is the preparedness of a business to mitigate disruptions which ultimately matters and determines its fate.

Here is a comprehensive look at mitigating disruptions and getting your manufacturing and supply chain in robust shape. This is based on a case study. The focus should be in understanding business objectives, as well as, constraints, as well as in conducting a structured optimization/resiliency process that results in an optimal network configuration and strategic roadmap.

The Case Study

A multinational was looking to develop a comprehensive and industry leading disruption mitigation strategy and a well-laid implementation plan to mitigate disruption. The strategy would also have to fuel growth to achieve business goals. It is vital to note that the disruption planning had to account for both global as well as local disruption that would cause significant negative impact to the business.

The business imperatives were analyzed and a disruption sensitivity analysis was performed with well-thought levers to understand the impact of the disruption on the business and to come up with a mitigation plan. Taking the sensitivity analysis into account, the optimal network configuration and strategic roadmap was determined. A comprehensive implementation plan was also drafted to achieve the desired results.

This approach to mitigate disruption can be extended to other forms of disruption and to other business sectors  with specific adjustments as per the type of disruption, and business.

The Business Imperative – At A Glance

The business imperative should be clear, well-defined, and well understood across the organization and its principal decision makers. It should take into account the short term and long term objectives of the business and should focus on mitigating disruptions in the network, addressing capacity constraints, and being prepared to fuel growth and withstand downturns.

Below are the highlights of the business imperative for this case study which would be valid for any supply chain or manufacturing business facing disruption.

Risk mitigation in the network

• Mitigate the risk of sole source across major components, processes and finished goods
• Mitigate the risk of key operational levers that can hinder capacity – including productivity, space and rate of resource ramp up/ramp down
• Mitigate network strategy execution risk – including paced, managed deployment of product changes across the network

Capacity constraints

• Existing facilities may need to grow/shrink to support capacity requirements or downside risk
• Understand resource growth requirements to support capacity requirements

Growth requirements

• Growth needs to be supportable by the manufacturing network or a viable outsource alternative
• Planning of product changes to achieve capacity needs to be evaluated and planned
• Balancing of resources across the business in support of growth/shrinkage needs to be structured

Core competencies to pursue suitable network strategy

• Assess people, process, technology requirements to support network strategy
• Highlight gaps and make necessary changes to build required core competencies

Disruption Sensitivity Analysis

Sensitivity analysis is the first step to estimate the impact of disruptions in a manufacturing network and to understand the impact of different levers to mitigate the resulting revenue loss.

In this case study, local, regional, global, component-specific, product-specific disruptions were analyzed to come up with a holistic approach to mitigation strategy 

Multiple sensitivities were run to understand the impact of various levers (resource reallocation, overtime and additional months of FG inventory) on achieving recovery from a disruption. The objective should not be to achieve full recovery necessarily, but to seek the cost-benefit analysis that the organization is most comfortable investing into.

Country Disruption Analysis

A country disruption for the business would result in an estimated loss of $300M. Executing contingency plans outlined below would result in losses of only a fraction of this amount; representing a much more palatable scenario for management and shareholders. Let’s suppose that the following happens, and management takes the outline of actions below.

• Disruption occurred for a period of 6 months
• 20 FTEs relocated to other sites in 4 months
• 100 FTEs cross trained from Prod X to Prod Y in 4 months
• 2 Months of FG inventory present
• 10 percent overtime is utilized during disrupted time period

Below is the impact of running multiple sensitivities to mitigate the revenue loss:

• Utilizing 10 percent overtime throughout the year and resource reallocation the business could reduce the loss by almost 50 percent
• Utilizing 10 percent overtime throughout the year without resource reallocation reduces the loss by half. However, in this case the business is not able to meet 100 percent of the demand
• 10 percent overtime, 3 months FG inventory and relocation/cross training results in meeting 100 percent demand for Prod X, but approximately 90 percent for Prod Y
• By utilizing only the inventory and overtime levers, the network is able to meet almost 100 percent of demand

Regional Disruption Analysis

A regional disruption for the business would result in an estimated loss of $400M after executing contingency plans outlined below:

• Disruption occurred for a period of 6 months
• 20 FTEs relocated to other sites in 4 months
• 100 FTEs cross trained from Prod X to Prod Y in 4 months
• 2 Months of FG inventory present
• 10 percent overtime is utilized during disrupted time period

Below is the impact of running multiple sensitivities to mitigate the revenue loss:

• Utilizing 10 percent overtime throughout the year and resource reallocation results in meeting only 90 percent of Prod Y demand
• Utilizing only the 10 percent overtime lever results in meeting less than 90 percent of Prod Y demand
• Utilizing all 3 levers result in meeting 100 percent of demand in the year
• Utilizing only the inventory and overtime levers result in falling short of Prod Y demand requirement by approximately 10 percent

A Structured Decision Support Model

Here are some thoughts around a structured Decision Support model to determine the optimal network configuration and strategic roadmap.

• Build decision support model with core inputs and functionality 
• Evaluate model scenarios with no constraints with respect to capabilities and manufacturing changes 
• Add business rules to constrain the number of changes, buffers, etc. 
• Prioritize product changes according to total net contribution to the business and the network/site strategy 
• Lock configuration and changes and run scenarios, sensitivities 
• Conduct final evaluation of the configuration for fit with overall business objectives 
• Make final changes to recommended configuration 

The Recommended Network Configuration

The recommended network configuration was arrived at after considering a number of scenarios and sensitivities on the network model. The focus again was on mitigating disruption and determining the end state profile.

The end state profile is what a business plans to achieve within the predefined timeline to mitigate disruption, restore normalcy, and fuel growth. It includes effective management of resources, and utilization, network reclassifications, Capex planning, and a handful of other considerations.

Key Execution Requirements for Network Strategy 

The key requirements outlined in the network strategy need to be executed successfully to realize the benefits and risk mitigation requirements. Key areas to manage carefully include:

Execute multiple product/process transfers 

Improved management of tech transfer and compliance/regulatory requirements 

Decentralization supports risk mitigation, but there is no one-size fits all

Manage shifts in production volume 

Advanced inventory planning across sites 

Manage aggressive hiring and training of direct labor 

Enhanced focus on workforce recruiting, training, and talent management 

Execute infrastructure and technology investments 

Capacity incremental options at the different sites

Integrated product hierarchy & master data management 

Enhanced systems and inventory controls (PLM, Planning, MES, etc.) 

Visibility to new product demands on manufacturing technology

The Implementation Roadmap

The implementation roadmap needs to be comprehensive and should include all the key elements needed for ensuring success.

Strategic Requirements – The product moves and volume shifts from the recommended model drive the execution requirements.

Execution Requirements

• Capacity Builds, and Changes – The product transfer, regulatory processes and capacity build-outs are key execution requirements
• Hiring and Training – Improvements to the hiring and training process will be required given any steep ramp up rates or downside adjustments
• Supply Chain and IT – There are select Supply Chain and IT related activities key to execution

Project Management – Managing transformations on such a scale requires establishment of appropriate change management, and governance mechanisms.

Effective Contingency Plan During Disruption

Reallocation of resources after prioritizing the product portfolio can mitigate the impact of a disruption to an extent. The prioritization criteria should be well-defined and must include:

• Gross Profit and Capacity Impact – Prioritize products with higher contribution to gross profit and impact to capacity (hours).
• Product Growth Potential – Prioritize products with higher growth potential and the one’s that require minimum resources to produce (ease of production).
• Flexibility and Risk Mitigation – Ensure redundancy across networks for growth products and substitutes.
• Network Management Complexity – Reduce network complexity for e.g. reduce the number of SKUs (SKU Rationalization), minimize the number of hand-offs / touch points, etc.) and ensure the focus is on managing the core business.

The Verdict

Disruptions are common for any business. While it may not necessarily be as severe as the current COVID-19 situation, it is good to plan for even smaller disruptions which can negatively impact a business. A well-defined disruption mitigation plan has the potential to not only bring the business back on track, but also deliver growth.

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