Business Resiliency in the Eye of the Storm

Tips to assess your supply chain and evaluate hurricane response plans

By Jim Tompkins, CEO, Tompkins Associates

The National Oceanic and Atmospheric Administration (NOAA) predicts that the 2007 hurricane season will be more active than usual, with the possibility of up to 10 storms becoming hurricanes. After Hurricane Katrina in 2005 resulted in devastation that went beyond predictions, businesses have considered supply chain risk management a top priority.

As we move further into hurricane season, it is important to understand that the common risks to a supply chain during normal operations are amplified during times of disruption and disaster such as hurricanes. This includes availability of labor, machines breaking down, the reliability of suppliers, shortages of goods, problems with infrastructure, and changes in prices of goods.

This was seen after Hurricane Katrina battered the concrete Bay St. Louis Bridge into pieces. The bridge had been the main connection between the Bay St. Louis to Henderson Point and the rest of the Mississippi gulf coast. Twenty months after it was destroyed, two lanes of a new bridge were completed and opened to traffic, reconnecting residents and businesses which had previously been forced to undertake a 45-minute commute around the bay.

Consider what vital infrastructure your supply chain depends on and then imagine not having access to it for nearly two years. The availability of employees, replacement equipment, supplies and the cost of goods would all be affected. The magnitude of a hurricane’s impact can be unexpected, with consequences that can last well beyond the initial event, and that is why it is essential to be prepared.

It is not only the businesses on U.S. coastlines that need to have a plan for supporting a supply chain in the event of a hurricane--all businesses should be prepared. A business could be based in a state that has no threat of hurricanes, but its supply chain may have suppliers in the area or have goods that go through ports that can be affected.

To assess your supply chain, consider some of the elements of its operation:

Suppliers - Consider suppliers whose operations are in areas prone to natural disaster, and work with them to plan for such a situation. If you have redundant suppliers who could make up for one another, plan with them and have steps in place if they are needed.

Customers - If you have a customer who accounts for more than 50 percent of your business, find out how long you can sustain operations if the customer’s business is disrupted because of a hurricane. This is especially important as the customer may not be in a financial situation to work with you on payment after such an event. Not only are finances affected, but simple access to banks can prove very difficult after a severe storm, which can knock out electricity and mail service for weeks.

Operations - If a raw material is unavailable, consider how well your processes could handle alternate materials. The procedures for switching to an alternate material should also be in place.

Third-party logistics relationships - Auditing these relationships on a consistent basis is not only essential to business resilience, but is key to managing the relationship itself. Along with ensuring the relationship remains positive and beneficial for both parties, the audit should include an understanding of the third-party provider’s business resiliency and what plans they have for unexpected disruption or disaster.

Manufacturing synthesis - Planning for manufacturing resiliency includes knowledge of what redundancy exists for water, gas, air and refrigeration use and how long those redundant systems can work. Also consider redundant systems of equipment and what spare parts are available on-site.

Distribution synthesis - The transportation processes for raw materials can be interrupted by an event like a hurricane. Consider what alternate routes are available. If you use carrier services, consider what alternate carriers could be available if your main ones are out of service.

Communication - Audit how you communicate with customers, clients, partners and other supply chain members, as well as how employees communicate with each other. In many instances, cell phones, land line phones, e-mail and other communication methods will be out of service if a hurricane hits. After Hurricane Katrina, some companies bought satellite phones for critical staff after they found it impossible to relay any information during and after the storm.

Tailor your supply chain’s needs to these considerations by thinking of specific scenario-based questions such as “What would it cost for a machine to be down for a day?” and “If one critical material were lost or unavailable, would it cause operations to halt? Do I have any safety stock, and does it have special needs, like refrigeration?”

The key is to prepare and evaluate plans regularly to be ready for hurricanes. The tools for successfully dealing with such disasters do exist, including global supply chain visibility systems and supplier collaboration. But are you really evaluating your plan? Regular evaluation is critical to having a successful response in the event of a hurricane.

Evaluation and Reevaluation

To determine how hurricane-prepared your company is, use these realistic performance measures :

• Robustness: The strength or the ability of organizational elements and systems to adapt to or withstand given levels of disruption or interruption without suffering degradation, loss of function or performance.
• Responsiveness: The ability to anticipate and adapt to disruptions, so stakeholder confidence in your company is maintained.
• Resourcefulness: The capacity to identify challenges and opportunities, establish priorities and mobilize resources when conditions exist that could threaten your company’s performance.
• Rapidity: The capacity to meet performance priorities and achieve goals in a timely fashion so that you contain losses to the lowest levels possible if there is a disruption or even a surge in demand.
• Redundancy: The process of substituting organizational elements and systems while still satisfying performance and functional requirements in the event of a disruption.

It is not enough to evaluate your plan once or twice. In this economic climate of acceleration and speed, situations are subject to sudden changes. Supply chains are much more fluid than they used to be, and so is business. That is why you must review and rank your operations periodically.

Conclusion

Perform regular assessments of your supply chain and resiliency plans to ensure that new risks have not arisen. I recommend that your business resiliency planning team determine the number of times a year that they should meet to reassess vulnerabilities, compare company progress, be aware of changes in the environment and marketplace, and consider any shifts in demand.

Hurricanes can be unpredictable in magnitude, timing and effect, and it is not easy to prepare for them. Floridians sorely remember the 2004 hurricane season, when for two months barely a day went by without the state being under a hurricane warning, preparing for its arrival, or recovering from the storm. Protect your operations with a business resiliency plan, and it will pay off in times of disaster.

Some information for this article was taken from Bold Leadership for Organizational Acceleration (2007) by Jim Tompkins.