Inventory is a classic example. Safety stocks are put in place to compensate for unusual demand
or supply within the lead-time to recover the situation. As an example, a pharmaceutical
company with a single source of its active ingredient for a drug where the supplier was located
on an earthquake fault held 18 months of inventory as contingency. By contrast a retailer might
have worked out that the temporary loss of one of its four depots due to fire would not interrupt the
business severely since product can be rerouted via the others and the likelihood of two burning
down at the same time is remote. However, if that depot had single national coverage, it would be
wise to have a rehearsed contingency plan if not actual back up. Another example of contingency
would be if a manufacturer operating on high levels of plant utilisation has identified alternative
outsourced capacity against the event that the plant goes down or some other environmental shock
occurs.