When Disaster Strikes: The Power of Contingency Planning

By Bill Quarless
September 2008

{Note: This article appears in the September 2008 issue of Response. Click here to read it on the Response Web site.}

The earthquake in Sichuan, China is one of the year's most tragic events, and the deadliest earthquake in recent times. The loss of life and the human suffering has been heartbreaking, making business concerns seem petty in contrast. Still, several clients have raised concerns about the earthquake and how it may affect future China production. Now that an appropriate amount of time has passed, I decided to write about this aspect of this event.

A little known fact is that China is one of the world's most affected countries when it comes to natural disasters. Every year, more than 200 million Chinese suffer through earthquakes, floods, typhoons, droughts and fires. In fact, China has had three major earthquakes in the past three years. Any of these events could have a catastrophic effect on a DRTV project in rollout. And it doesn't take a major disaster to cause production delays, either.

This past winter, as factories were closing for the Chinese New Year holiday, China was hit with the worst winter storm in 50 years. More than 500,000 migrant workers making their annual journey back home were stranded at bus and train stations throughout the country. The transportation problems had ripple effects in northern and central China for weeks. In the summer, when China's power grids are overloaded, blackouts are a routine problem. Indeed, several manufacturing areas are only allowed to use power for three or four days per week.

So will a random "act of god" end your next campaign? Not if you think ahead. Here are some suggestions:

1. Plan on problems. When it comes to preparation, don't be an optimist. Assume something will go wrong, and start by padding your production and delivery dates. Make your schedule flexible, and add an extra week or so to every shipment. Calculate the daily production you will need, and open the required molds and tooling to meet your schedule. Then, increase your required production by 15 percent. This should create a nice buffer and allow you to weather production issues.

2. Carefully select your suppliers. Many factories have backup generators and experience with problems like the ones mentioned above. But it always pays to check. Make sure your factory has multiple suppliers for raw materials. Ask intelligent questions: What did they do the last time disaster struck? Do they have contingency plans for future problems? How many suppliers do they have for parts and components? What happens if a component supplier can't deliver? Pay attention to how the factory answers these questions and probe further if you don't like what you hear.

3. Dual-source and separate factories by region or province. For every major project, our business utilizes at least two factories that are strategically chosen for their geographic location. This should be a golden rule for every DRTV project in rollout. If typhoons hammer central China or floods hit the south, the impact on our production is minimal. That's because each factory runs independently of the other and ships from a different port. When disaster strikes, we simply shift production and continue shipping with little or no effect.

4. Source and set up sub-suppliers for your parts and raw materials. Most people don't think about this, but it can take up to 10 factories to make a single product. Most DRTV sourcing managers only tour the main assembly factory, but there are several material suppliers providing that factory with raw plastic or metal, screws and bolts, motors, retail or corrugated boxes, instruction manuals and so on. In our experience, these sub-suppliers are extremely important to keeping production schedules because they are the single biggest cause of production delays. By proactively evaluating and selecting these suppliers, and backup suppliers, you can ensure that assembly delays are quickly resolved.

By "expecting the unexpected" with contingency planning, smart DRTV players can make all of their hard-earned hits weather and disaster-proof.