Supply Chain Disruptions: Hurricanes Wreak Havoc
Disruptions ramp up! Unfortunately, there was a massive hurricane that wreaked havoc in several states including North Carolina, Georgia, Virginia etc. 130 people have died and many are unreachable. Towns are destroyed including one that has a special place in my history (Boone, NC as my best friend from high school and college attended 2 years of college at ASU, and I visited Boone many times), and the manufacturing of critical products have shut down. There will be widespread implications and a long recovery.
In addition to the horrible loss of life and homes, manufacturing plants have closed. For example, Baxter’s largest manufacturing site in Marian, North Carolina that makes 60% of the U.S. supply of dialysis solutions and IV fluids has shut down. Although they followed hurricane procedures, evacuated employees and moved product to higher ground, the facility was flooded and damage has to be assessed.
Also, according to Ed Conway, author of Material World: The Six Raw Materials That Shape Modern Civilization, “as far as we know, there’s only a few places in the world that have ultra-high-quality quartz.” Quartz comes overwhelmingly from Spruce Pine, North Carolina, and it is used in the production of semiconductors and solar panels. Again, there is no estimate on the devastation and recovery.
Supply Chain Disruptions: Port Strike Set for Massive Impact
East Coast and Gulf Coast ports are on strike, impacting goods movement from the Northeast to Texas. Close to 50,000 ILA workers longshoremen from three dozen ports walked off the job after failing to reach an agreement with ports ownership, impacting 43-49% of the U.S. cargo. The potential economic impact is $5 billion per day according to a J.P. Morgan analysis!
There were three months of no negotiations. The workers want 77% pay increases, and the union is at 40% pay increases. Although that is a huge gap, even more concerning is the request to ban automation. U.S. ports are already poor in automation as compared with the rest of the world. According to the Wall Street Journal, the U.S. ports are half as productive as the best port in China. As inflation has soared, further significant pay increases and dampening productivity will not help. In fact, it will harm competitiveness.
On the other hand, the economic impact is significant. The port strike will strand goods on container ships that are in transit. It will have a dramatic impact on the logistics communities surrounding the ports and related to the ports. For example, trucks, rail, and planes will be impacted as goods are stranded. It will also impact manufacturers that receive materials, components, and products from overseas. And, of course, it will impact consumers as warehouses and stores do not have ample supply. Unfortunately, the hurricane devastation will also create shortages, adding fuel to the fire.
Customers will reroute shipments to the West Coast, overloading those ports and straining the logistics systems supporting that area. In essence, the people (truck drivers, port workers, warehouse employees, rail employees, etc.), equipment (planes, trucks, rail, unloading equipment, empty containers, etc.) and products are in the wrong place at the wrong time. No one wants to go back to the days of container ships sitting off the ports of L.A. and Long Beach with the supply demand imbalance!
Immediate Strategies to Address
If they haven’t already done so, smart companies will immediately take action. Although there is no magic solution if you didn’t plan proactively, you can minimize damage and mitigate customer issues.
- Reroute shipments: Smart companies are rerouting shipments to the West Coast ports so that they can ensure product arrives, even if later than expected. Since there is bound to be a long line, it is urgent to take action rapidly. Those companies that have a good business relationship with their supply chain partners will fare better.
- Change the mode of shipment: Not all shipments can wait. You might need to jump on the situation and fly critical supplies and/or products.
- Prioritize: Assess your backlog and prioritize. Contact customers, evaluate production schedules, understand impacts, and set priorities.
- Reallocate capacity: If you have multiple facilities, ramp up facilities not dependent on the East Coast and Gulf ports or in the path of the hurricane destruction. Contact material suppliers and redirect deliveries.
- Reallocate inventory: If you have multiple warehouses or distribution centers, reallocate priority customers and facilities across your network.
- Backup suppliers: If you have thought ahead, it is time to go to your backup suppliers and request assistance.
- Partner with competitors: Crises require new strategies. When meeting with a group of CEOs at Harvey Mudd College for an executive roundtable, 80%+ of the executives said that they have collaborated with a competitor where it makes sense.
- Creative solutions: Search for creative solutions. For example, a client reformulated a material and qualified new suppliers during the pandemic to keep production running. Now is the time to innovate.
Medium & Longer Term Strategies to Address
In addition to these immediate and near-term strategies, you should roll out a SIOP (Sales Inventory Operations Planning) program to proactively navigate changing conditions and ensure you are prepared to support your customer’s needs. SIOP keeps you in front of changing demand and supply conditions including supplier shut downs, demand changes (for example, emergency supplies, building and construction products etc.) so that you can realign your demand and supply to successfully serve customers at the least cost. SIOP is your key to success in flipping from reactive to proactive. It will also give you a heads up on risk laden situations so that you can evaluate reshoring and nearshoring which would mitigate the strike impacts. To learn more about how to roll out the process, read our book, SIOP: Creating Predictable Revenue and EBITDA Growth.
You should also review strategies such as reshoring, expanding regional manufacturing, and vertical integration to increase your control over production and shorten the lead time for dealing with changing conditions so that you can be more resilient and responsive in these situations. For example, a lighting manufacturer vertically integrated and was able to quickly change directions to support changing customer conditions, which led them to taking the top position in the industry.
Clearly, rolling out risk mitigation strategies is also a smart practice for manufacturers. For example, hurricane preparedness can go a long way. When I was VP of Product Supply, our main facility that used to be owned by P&G suffered through a hurricane. Because they had thought ahead, they had a surplus of materials during hurricane season in case trucks could not get through or key suppliers were impacted. They also built the plant on higher land, which helped them avoid the flooding that occurred throughout the city. And, as you’d expect, they had thorough hurricane preparation protocols including topics such as safety, communications, etc.
There are several additional strategies that should be discussed. To read more about the risks and strategies to address the vulnerabilities and craft tomorrow’s supply chain today, download our complimentary special report.
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More Strikes & Disruptions: Prepare to Thrive: Create a Resilient Supply Chain