Hurricane Sandy’s a Tough Teacher

Oct. 31, 2012

While East Coast businesses get up after Hurricane Sandy’s smash-down, they’ll be nursing pain that demands healing. The bigger pains are bound to be supply chain related. This is the heart of holiday shipping, after all, and with ports closed and infrastructure damaged, retailers will need to take stock of their stocking and sourcing strategies.

Smart companies will learn from Sandy. They may even thank her later for exposing vulnerabilities. Of course insurance brokers and enterprise software providers will use Sandy as a teaching tool as well—to speed up the process of vulnerability exposure and inspire some solution discovery. Some of these providers are already reaching out to the media to help them send a call to action: “Fix your internal and external communication gaps!”

“There is still not enough alignment between the procurement function and group risk,” says Tom Teixeira, a practice leader with Willis Global Solutions, an insurance broker based in the U.K. and in New York City. “The silo mentality, driven by localized profit and loss accounts, has created opposing objectives, such as procurement trying to significantly reduce inventory and group risk trying to reduce the level of business interruption should disasters occur. Once the full extent of the damage from Sandy is analyzed I have no doubt we will see large business interruption losses, not just as a result of property damage at supplier sites but as a result of power failure to suppliers leading to the stoppage or partial stoppage of production.”

Teixeira says many companies have failed to drive effective business continuity planning across their supply chains. Of course that requires information links, which is what companies like GT Nexus provide. Right now this service provider is using Hurricane Sandy to communicate the value of cloud communication, which, ironically, is all about visibility—visibility of alternative sourcing opportunities, primarily.

In Sandy’s aftermath companies will need to assess their risk exposure, if they haven’t already. What shipments were on their way? Where are they now? Where were they destined after receipt and who needs to know their status? Most importantly, for manufacturers especially, the question becomes “how can I change my sourcing if necessary?”

Sandy and other disasters of the last couple years have convinced many big companies with lots to lose to pool their knowledge via “shipper councils.” Greg Kefer, vice president of corporate marketing for GT Nexus, told me these meetings have become priorities for his company’s clients, and you can bet Sandy will be the talk of the next one.

“One of the things we will do with the shipper council is a post mortem where some of the people who did things to mitigate their exposure to this event will share that with the group,” he said.

He recalled another post-event shipper council that took place shortly after news of the “Arab Spring” got the talking heads on CNN debating potential outcomes. One outcome not too many saw coming was the effect of tyrannical resistance, particularly in Egypt and Libya, on commerce. One of the companies in this council shared the importance of planning for that contingency.

“Consider that Egypt controls the Suez Canal, and they could have shut it down,” Kefer said. “This company didn’t want its inventory sitting in the Red Sea with all the shipping lines refusing to go through because of artillery shells flying around the locks. So this company’s first response was identifying the inventory it had that was slated to go through and planning routes around Africa to get it to its destination ports in Europe.”

Similarly, while Libyans protested their government and Gaddafi struggled to stay in power, this company considered the large transshipment ports in the Mediterranean Sea, particularly Malta. One of the large ocean carriers had a huge transshipment hub on Malta and this shipper was concerned that Gaddafi, in a state of desperation, would start shooting his scud missiles across the Mediterranean.

Although neither of those events happened, this shipper anticipated them and began to run reports to get a sense of where their exposure was in those two zones.

“If things had happened as they feared, this company was weeks ahead of everybody else and would not have had a problem securing the needed capacity,” Kefer said.

The wounds Sandy inflicted on the eastern third of the U.S. are still fresh, and with Christmas around the corner, manufacturers and retailers don’t have much time to make supply chain adjustments. Let’s hope that amidst the wreckage of Sandy’s wake are the silos that foiled contingency planning in its advance.

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