Business Contingency Plan (BCP)

Previously, we analyzes Business Continuity Plan (BCP) for bird flu situations awareness.

Supply Chain Management:

Supply Chain Management is not a new topic. Same goes to supply chain management software.

I could still remember Nike and i2 failed supply chain web based project many years ago .... and had it been sorted out now ? They probably have, check out the customers listing. But that was many years ago, when Microsoft ASP was king and J2EE was still pretty much in infancy.

Supply Chain Disaster:

There is an article published from CIO magazine about how supply chain manangement problems give rise to IT projects disruption and revenue lost amounted to millions of dollars.

The title of the article is called "When Bad Things Happen to Good Projects" - Christopher Koch.

The article states that when HP was moving North American divisions onto a centralized ERP system from SAP, minor glitches in the rollout snowballed into a USD 160 million disaster.

The glitches was due to some data modeling issues between the legacy system and the SAP system. This problem caused the new system to not able to process some orders for customized products. Resulted in as many as 20% percent of customer orders for servers stopped dead.

They have been planning for it, but not comprehensive enough.. where they have planned for 3 weeks of extra servers and took over an empty portion of an HP factory in Omaha to stand by for any overflow of orders that needed special configurations.

HP CIO and Executive VP of Global Operations Gilles Bouchard deos not see the data modeling problems between the legacy and SAP systems as the source of the USD 160 million impact. He focuses on HP's inability to keep pace with orders in the supply chain once the problems were discovered. "It was capacity issues, material issues and factory issues," he says. "We had a series of small problems, none of which individually would have been too much too handle. But together they created the perfect storm."

Back to Nike again, they too faced similar disaster with their centralized SAP system in 2001, it was related to demand-planning application when it was made centralized.

The problem was tamed within a few weeks, but because the company did not have an adequate business contigency plan, the small glitch in IT cost Nike USD 100 million in revenue.


Supply Chain Economics:

So, small glitch and big money.

This made us realize one thing... big companies like Microsoft, HP, Dell, Apple, Google, IBM and etc cannot afford to lose time. They can afford to lose some money but not time, in order words, they cannot afford to lose supply chain of their money making activities.

This goes to explain why Microsoft won't do everything. If you are a budding entreprenuer, you might be wondering when you would be made obsolete by those giants especially Google when something is made free again and again. And as much as they want to, they can't afford it thoroughly either.

Microsoft is investing billions of dollars into developing Windows Vista and maintaining thousand of employees (software engineers) to keep up with the challenges faced by existing products such as Windows NT and XP. In fact, they have no time at all... and if you start to think that Bill Gates is going to hire a few Indian programmers to copy your idea, theoritically it is possible but in terms of supply chain economics, it will never ever happen. Because if you have a solution capable of doing RM 2 million annually, never assume that Bill Gates is even interested to think about it because he would have wasted many millions by investing time to think about it. For the worst case scenario, he might be considering acquiring you... This is why they have acquired software vendors like Navision, Axapta, Great Plains and Solomons...

Therefore, don't worry that why can't Microsoft do it and never think that Bill Gates envy you either. He is like superman, only got 24 hours per day.

Knowledge or Technology:

Thus, the knowledge of supply chain management is important. Because we need to be able to develop contingency plan for IT projects.

Even extending HP's business contingency plan to bank an additional few weeks' worth of servers might have seemed risky because those extra servers might not have sold. In most companies facing such decisions, CIOs feel more comfortable trying to eliminate project risk by perfecting their project management skills. This route appeals to our optimism and quest for competence, says Robert Charette, president of Itabhi, a risk management consultancy. Business contingency planning, on the other hand, is gloomy and expensive.

The big problem is the mind-set. IT projects are still ruled by two main factors; budget and schedule.

The worst thing is that cost-and-schedule approach never holds up during a crisis, says Charette.

For instance, when HP saw that the order management system wasn't working properly, it pulled out all the stops to get the code working properly - forgotten about the pre-planning based on cost-and-schedule.

How to avoid a USD 120 million order backlog:

HP's contingency plan accounted for the business impact of software snafus, but didn't comtemplate the worst-case scenario.

What HP Did:

Training:
- Began refresher training in the second week after rollout

Manufacturing:
- Stockpiled three weeks' worth of servers
- Added capacity only at Omaha factory prior to rollout.

Customer service:
- Manually entered orders into system two weeks after rollout, when problems with data model were fixed.
- Added more customer service reps when orders piled up.

What HP should have done:

Training:
- Begin refresher training in the first week of the rollout.

Manufacturing:
- Stockpile five or six weeks' worth of servers.
- Have additional capacity ready elsewhere before the rollout.

Customer Service:
- Devise manual order-taking process to be used until system problems were fixed.
- Train additional customer service reps prior to rollout so that they would be available to tackle backlog.

Conclusion:

As much the cost-and-schedule goes, many organizations fail to see the need for contigency plan which is usually resources hungry. And if you are thinking of convincing the bosses better, perhaps you want to get a formal education about supply chain management, check out MPICS/DB Business School.

Tools for contingency plan, check out NKK Technologies for Situation Awareness and Understanding software framework, CORE Systems (Complex Objects Realization and Exchange Systems)

"There is a big leverage between IT and the business processes when you deal with a large supply chain. Just looking at contigency plan from an IT point of view would be a big mistake. It has to be looked at from an integrated view of IT processes and the business" - Gilles Bouchard, CIO and VP of Global Operations HP.

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