What will your company do if faced with a major supply chain disruption? Do your Sales and Operational plans include contingency responses? With supply interruptions consistently ranked high among executive concerns as a major business risk, one would think that would be the case. But there are many recent examples of retail supply chains that weren't prepared.
Two current issues bring that to mind: The first is the impact of West Coast port issues. The National Retail Federation (NRF) has warned that an extended port shutdown similar to the weekend work stoppage in early February could cost the U.S. Economy $2 billion a day. The second is the colossal snowfall burying the Northeastern United States. Any company with manufacturing or suppliers in a region buried under 50-plus inches has risk to its supply chain.
This is where it is important to stress the need to manage forward and reverse logistics as a continuum rather than separate processes. The impact of significant disruption in one phase has a distinct, identifiable impact on the other.
It's one thing to have out-of-stocks in stores because product isn't leaving the docks for your distribution centers, and eventually stores, according to plan. That impaired movement can have a financial impact from reduced sales and the cost of executing logistics contingency plans to keep shelves stocked. The reverse supply chain also intersects with and impacts those forward processes. When returns begin piling up in stores and distribution centers, forward flows and inventory carrying costs are impacted. Avoiding supply disruptions is a major driver of contingency planning, but, consider the impact to reverse movement of product, where more contingency planning is often needed.
Another scenario to consider is a product recall; an event that is uncommon, unpredictable and potentially very costly to a company's brand and profitability. Contingency plans are essential for product recalls, and those plans should include contingencies for handling product movement when the supply chain is compromised.
In the vein of recognizing forward and reverse as a single continuum, do not fall into the trap of thinking that a recall is only a reverse logistics situation. Remember that forward logistics agility is an important factor in brand protection and limiting revenue impact from a recall. How quickly you can replace affected product has a direct impact on consumer confidence, brand loyalty and the speed of recovery from a recall event.
Also remember that in today's global economy, even if your contract manufacturers or suppliers are in North America, they may have parts or ingredients made and shipped from overseas. Delays in availability of replacement product or parts can impact the timeliness of your recall response and impact consumer confidence.
Effective contingency planning can compress response timelines and improve the likelihood of having the agility necessary to adapt and overcome adversity.
One of the critical keys enabling that agility is rigorous data collection throughout the forward and reverse supply continuum. If you are gathering and analyzing data regularly throughout your supply chain, that visibility gives you better real-time insight to power effective contingency plans.
In our increasingly complex and dynamic global economy, contingency planning is more important than ever. As supply chains increase in complexity, so does risk. Having solid contingency plans that recognize those risks and adapt the entire supply chain to address them can mean the difference between success and failure.
What successful strategies have helped you weather supply chain disruption? Comment on my thoughts or share your own in the comments section below.