Your organization utilizes people, equipment, inventory and other assets to serve customers. Almost every day these three elements work in harmony to generate profits. They may work so well that your management is lulled into a false sense of security. But what if something goes wrong and doesn’t work or happen as planned? Does your company have the capability to quickly recover with as little disruption to your customers as possible?
There are some catastrophes that will always cause a significant disruption to your business operations. If your warehouse filled with inventory burns down, it will probably take months for you to resume normal business operations. But, with a little effort, you can put into place contingency plans to mitigate the negative effect of other problems that have the potential to cause significant hardships to both you and your customers. In the next several issues of the newsletter, we will look at some of the basics of contingency planning. Let’s get started:
Backup, Backup, Backup! – I will never forget talking to the distributor who complained that it took too long to back up all of his computer records. He only did it once a week and stored the backup drives on top of his file servers. One evening an electrical fire wiped out his server room. Suddenly his company faced the task of recreating all of their business records. I recommend that:
- Your computer records should be backed up at least once a day.
- Backups for each of the previous five days are kept on-site in a fire proof safe. Alternatively, you can utilize one of the “cloud based” Internet backup services. However, if you do this, make sure that they maintain separate backups from the previous five days. This allows you to recover a file from several days ago if someone corrupts one of your critical files.
- Once a week, take one of these backups and store it in a separate off-site location.
Don’t Rely on one person to handle replenishment – Too many organizations rely on one person to decide when products need to be replenished and how much to order. This is a very experienced employee who often keeps all of their industry knowledge in their head. A metal service center relied on “Josh” who had bought inventory for over 30 years. He understood the “pulse” of the metals markets as well as customers’ needs and did an outstanding job of managing the firm’s inventory. One day at 9am Josh dropped dead of a heart attack while sitting at his desk. It took the company months to train other employees to properly forecast future demand of products and replenish inventory.
Effective replenishment of your inventory is critical to your organization’s success. To avoid lengthy disruptions in this critical process:
- Divide replenishment responsibilities between several individuals. Each person should be responsible for replenishing certain vendor lines throughout your company or within a region. However buyers should “cover” for one another during vacations to gain some knowledge of other product lines.
- Document the procedures you follow to forecast future demand of products, set minimum/maximum stock levels or other parameters, issue purchase orders and transfers and other related replenishment activities. All employees should be required to follow these procedures. When someone has a better idea of how to perform a specific task, it should be evaluated by management. If it is indeed a good idea, it should be included in your policies and procedures.
- A central file should be kept of vendor information including sales and customer service contacts as well as what is required to achieve each supplier’s “target” order requirement. That is, the requirement for you to get the terms or discounts that allows you to competitively sell the vendor’s products.
Contingency planning is a big subject. But, it is one that is crucial to your organization’s success and survival. In this issue of the newsletter we have given you a couple of ideas to get started. Next month, we will explore how you can work to assure a consistent flow of products from your vendors. If you have contingency plans of your own that you would like to share, let us know. You could win an Effective Inventory Management baseball cap!