Planning for all contingencies in a complex environment is not realistic. Things frequently can and do go wrong. If all available resources have been fully allocated to complete the planned work, then when high-priority unexpected work (or more precisely, unplanned-for work) appears, there will be no slack in the system to accommodate the work.
Many companies react to this situation in a way that makes the problem worse: They overload the current capacity by asking teams to do more, which in turn slows everything down. The alternative for these companies is to fail to meet customer expectations, which could have financial penalties or reputational risk.
A better approach to dealing with these uncertainties is to build slack into the system. Slack in this context would mean extra resource capacity. The argument against slack is that it could be wasteful. If we don’t need the slack, then we end up paying for capacity we didn’t use.
The package delivery industry offers a great example of applying slack in an economically sensible way to deal with uncertainty. Their concept is often called “hot spares,” or more literally “flying spares.” I will use FedEx as an example, but they are not the only delivery company that utilizes this concept. Word on the street is that Amazon is already starting to use “hot spares” with its new delivery fleet.
A flying spare is a plane that is either empty or not fully loaded. Its purpose is to pick up any cargo left behind by other aircraft. Why might there be cargo left behind? Because of uncertainty in the shipping business. For example, a company makes a shipment that is materially larger than its normal shipment size and that company fails to communicate the much-larger-than-normal size to FedEx. (It happens!) As a result, FedEx is not expecting the quantity of cargo it gets presented and it hasn’t planned for extra transport capacity.
Another common example is a plane stationed at an airport experiences a mechanical problem and it is not able to fly. These are just a couple of the many uncertainties that companies like FedEx can and will experience. When these uncertain events happen, FedEx has built-in slack—they have the option to redirect a flying-spare plane to the affected airport to provide additional capacity.
Example: FedEx Flight 1311
I live in the Denver metro area. Many nights, FedEx Flight 1311 takes off from Denver with a destination of Memphis, where FedEx maintains its SuperHub sorting facility. However, as you can see in the image below (which is typical for this flight), Flight 1311 does not fly a direct route from Denver to Memphis. If it did, it would take about 2 hours and 15 minutes.
Instead, Flight 1311 flies to southwestern New Mexico and then east through several other states to get to Tennessee. The January 3, 2019 flight shown below took 3 hours and 29 minutes to complete.
Why does FedEx fly an empty or lightly loaded aircraft on a circuitous route that burns more fuel and requires extra flight crew time? Oh, in case you were wondering, according to FedEx’s managing director of global operations control, this flight costs FedEx about $30k each night!
FedEx flies this aircraft (and others like it) to provide the necessary slack to ensure it can meet its customer agreements for on-time delivery. Flight 1311 flies this weird route so that it can, within a short period of time, divert to airports across a good swath of the US Southwest to provide additional capacity to recover from unpredictable delivery volume or reduced capacity due to maintenance or weather problems. And, FedEx has additional flying spares that cover other parts of the continental US.
All companies that I visit need to address their own particular types of uncertainty. However, most are initially put off by the idea of slack because they don’t want to pay for capacity that they may never need.
And that is a real possibility. Most nights, Flight 1311 flies its weird route from Denver to Memphis and never diverts to another airport. But should FedEx stop flying this plane? What would be the economic impact to FedEx if they needed that plane and it was unavailable? Probably a lot greater impact to FedEx in terms of cost and reputational risk than $30k/night.
So, do you think you could convince your CFO to pay $30k/day for something you might never need? If you can make an economically sensible argument, then I hope that you could!