What is Contingency Protection?
Warehousing exists as a protection against contingencies such as transportation delays, vendor stockouts, or strikes. With contingency protection in hand, a firm will not suffer heavy loss in revenue or incur high costs.
Elaborated explaination:
For example, when a vendor experience stock out situation, the buyer's company may be in potential danger of costly production line down which can delay the production of finished goods. However, if there is contingency planning, a buyer will often order buffer stock on top of what is required(buffer stock), the buffer stock will then be stored in a physical supply warehouse. Production can still carry on even when vendor experience stock out situation as raw materials can be pulled in from warehouse.
Contingencies also occur with physical distribution warehouses- for example, goods damage in transit can affect inventory levels and order fulfillment.
Singapore General Rice Importer Association example:
In year 2007, there was a global rice shortage as Philippines, China and other rice growing countries were suffering from prolonged drought situation. Rice prices shot up by 10% in Singapore due to speculation. Singapore General Rice Importer Association stepped in and announced that there is no need to do so as their warehouses would stock enough rice that will last at least 3 months without supply.
The following example is what warehousing functions, contingency protection. Singapore retailers (Supermarkets) did not suffer any loss of sales/revenue from the global rice shortage.
2 – 3 usefulness of this topic in the distribution centre
Warehousing exists as a protection against contingencies such as transportation delays, vendor stockouts, or strikes. With contingency protection in hand, a firm will not suffer heavy loss in revenue or incur high costs.
Elaborated explaination:
For example, when a vendor experience stock out situation, the buyer's company may be in potential danger of costly production line down which can delay the production of finished goods. However, if there is contingency planning, a buyer will often order buffer stock on top of what is required(buffer stock), the buffer stock will then be stored in a physical supply warehouse. Production can still carry on even when vendor experience stock out situation as raw materials can be pulled in from warehouse.
Contingencies also occur with physical distribution warehouses- for example, goods damage in transit can affect inventory levels and order fulfillment.
Singapore General Rice Importer Association example:
In year 2007, there was a global rice shortage as Philippines, China and other rice growing countries were suffering from prolonged drought situation. Rice prices shot up by 10% in Singapore due to speculation. Singapore General Rice Importer Association stepped in and announced that there is no need to do so as their warehouses would stock enough rice that will last at least 3 months without supply.
The following example is what warehousing functions, contingency protection. Singapore retailers (Supermarkets) did not suffer any loss of sales/revenue from the global rice shortage.
2 – 3 usefulness of this topic in the distribution centre
- From the supply side, ensure no production line down which could be very costly as resources will be left idling.
- From the distribution side, sales will not be affected even if contingency occurs. Example : 2007 global rice shortage.
2 – 3 Contraints of this topic in the distribution centre
- Having buffer stock to counter contingencies may be good, however, it is constrainted by the nature of the industry. "time sensitive" or "high value" products may be too risky to store.
- It can be a conflict for firms adopting "lean" methodology. The DC must be able to meet demand with lean inventory.
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