Achieving Flexibility via Contingency Planning Activities in the Supply Chain

Introduction

Recent world events, such as the 2010 US Gulf Coast oil spill, the 2011 Japanese tsunami, and uprisings in the Middle-East, have highlighted the need for more research regarding how to reinstate and maintain the flow of goods and services following such disruptions. Supply chain disruptions affect not only local economies, but often interfere with international trade. For instance, in 2002, disputes between shippers and union dockworkers resulted in the closing of all ports on the western coast of the United States. This “West Coast lockout” resulted in a backlog of shipping containers and led to a staggering $15 billion cost to the U.S. economy (Alden, Burton, Hijino, & Rahman, 2002). The lockout not only impacted the local and state economies by slowing production at manufacturers such as Boeing (Nyhan, 2002) and lowering state tax revenue receipts, but the international business community was negatively affected as well. As the strike continued, it was estimated that a one-week strike could cost Japan and China nearly 3% and 12% of their GDP, respectively (Alden et al., 2002; Farris, 2008). In addition, disruptions in information flow and process can yield similar consequences. Snyder and Shen (2008) report that one hour of downtime for the online auction site Ebay results in an estimated loss of $225,000 US. Severe weather events and natural disasters can also have a tremendous impact. Hurricane Katrina’s massive impact affected business beyond its initial landfall by temporarily closing the Port of New Orleans, a critical transportation hub servicing 28 US states and supporting nearly $37 billion in economic benefits (Skipper, Hanna, & Gibson, 2007, 2010).

Managing interconnected organizations is an ever-increasing challenge in today’s competitive business environment. Increased demand, shorter product life cycles, fierce competition in the marketplace, and globalization culminate to create complex and fast-paced international supply chains. As complexity increases and interdependency becomes more prevalent, increased levels of risk occur (Alamoudi & Cho, 2011; Christopher, 1992). Many studies have used a variety of approaches to attempt to investigate the techniques used to manage these complex issues. A wide range of topics, including risk management (Borgman & Rachan, 2009; Finch, 2004; Vanany, Zailani, & Pujawan, 2009), operational strategies (Croxton, Garcia-Dastugue, Lambert, & Rogers, 2001), trust (Laeequddin, Sahay, Sahay, & Waheed, 2011; Zuo & Hu, 2009), proactive management (Sinha, Whitman, & Malzahn, 2004), and supply chain design (Lowson, 2002) have all contributed to the level of understanding of how to manage today’s complex and interdependent organizations.

Complex supply chains require a degree of interdependence among organizations, creating a situation where a single disruption can cause a ripple effect that dramatically impacts multiple processes and organizations (Peck, 2005). Christopher (1992) defined a supply chain as the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services delivered to the ultimate consumer. One preemptive solution to a potential disruption in the supply chain is the establishment of contingency planning processes that enable an organization to be more effective in their prevention of, and response to, a disruption.