eyes on the skies
When you think of your best defenses against disaster, the weather guy is probably not the first thing that comes to mind. But maybe he should. Threats to your operations can come from all venues—terrorists, fires, chemical spills—but an awful lot of them seem to involve weather: tornadoes, blizzards and ice storms, hurricanes and floods.
Though any one of these weather events could completely disrupt the supply chain, they're rare enough that they may only rate mention in, say, Section 19-G of the corporate disaster plan. That's a risky way to do business. "You wouldn't think of operating a distribution center without a fire alarm," says Michael R. Smith, CEO and founder of WeatherData of Wichita, Kan., "but it's amazing how many companies try to operate their weathersensitive businesses without some kind of weather alarm system."
In fact, it seems that many companies are trying to run their businesses without much in the way of a disaster preparedness plan at all. According to a recent survey, the 2003 Protecting Value Study conducted by commercial and industrial property insurer FM Global, the Financial Executives Research Foundation and the National Association of Corporate Treasurers, 88 percent of financial executives and 83 percent of risk managers admitted that their companies were not entirely prepared to recover from a major disruption to a top revenue source. That same study singled out property-related hazards, such as fire and natural disasters, as the greatest threat to revenue sources.
There's not a thing you can do to prevent a natural disaster, of course. But there are many matters you can think through in advance when it comes to recovery: Who's responsible when a tornado rips through your loading dock and damages a carrier's trucks? What happens to the urgent shipment that requires pickup in Alabama when your fleet is snowed in somewhere on Michigan's Upper Peninsula? How can you protect your delicate robotic loading equipment from lightning strikes?
You may never have to answer these questions. But then again, you might. For those who aren't taking any chances, we offer five tips on preparing your supply chain for stormy weather:
- Back up all your systems – not just your computer systems. Too many people figure that because their IT specialists have devised a recovery strategy for their data center, they've made a good start to their disaster planning, says Mike Morganti, customer training manager for FM Global of Johnston, R.I. The problem is, there's more to the distribution of goods than just the data.
Take the private fleet, for example. "Having your own fleet and drivers gives you a lot of control, but it doesn't preclude something's interrupting the flow," Morganti says. His advice: "Identify strategies to make sure there will be an uninterrupted flow of products from the distribution center to the customer. This could be as simple as making flexible arrangements with outside carriers."
Another option is to pre-position product in certain locations if the weather looks threatening, says Michael J. Fagel, Ph.D. , emergency management director for meat packer Aurora Packing Co. of North Aurora, Ill., and emergency manager for the village of Sugar Grove, Ill. Arrange for some alternative warehousing around the country and get your product closer to the "end game." Then rotate your stock. "For example, a lot of companies placed food and other perishables on trailers and had them pre-positioned throughout the country just prior to Y2K in case there were problems," he recalls. "If you're anticipating, say, a winter storm or other disaster, this is something to consider." - Review your insurance coverage. A seemingly minor point, but one that may save you a lot of money: "If you have other companies' inventory in your center, you must be sure you are properly insured for it, "warns John Kauffman, director of loss control training for the Connecticut-based Hartford Financial Services Group.
Of course, somewhere down the road, most—if not all—inventory becomes cargo. That cargo should be insured as well. "Make sure third-party carriers are adequately insured, "advises Kauffman, "and get copies of proofs of insurance. "Then meet with your insurance agent to discuss what your exposures and responsibilities are with third-party carriers in disaster situations. For example, if the carrier's trucks are on your premises during a disaster and are damaged ,who's responsible for the damage to those trucks? "Create up-front agreements with the carriers so everyone knows who's responsible for what du ring a disaster, such as alternate means of transportation," he urges. Then make sure the carriers have disaster plans in place and be prepared to coordinate your plans with their plans. - Forget the NWS. Many companies rely on reports from the National Weather Service (NWS) for advance notice of weather-related problems. But those NWS reports often fall short, argues Smith of WeatherData, a service that helps clients identify their weather-related risks and create plans to mitigate those risks.
For example, the NWS does not issue any kind of lightning warnings. "However, if you have a highly automated distribution center that relies on robotic loading equipment or computers that run the operations, a power surge can be disastrous," he says. If that's the case, you need a lightning warning system so you have time to shift to your generators and isolate your power sources from commercial power before lightning arrives.
The NWS doesn't do much better with tornadoes. The Weather Service only issues tornado warnings by county, which gives you no real indication whether your facility is directly in the tornado's path. "It is possible, using the improved technology that has been developed over the last decade, to be very specific about whether a given site is within the path of a tornado or not," Smith reports. That's important to know: "If you're in the path, you want to do an orderly shutdown and shelter your people," he says."If you're not in the path, though, there is no reason to take what could be a very expensive hit in terms of productivity by shutting down operations."
Hurricanes present a different kind of problem: Ever since Hurricane Andrew devastated parts of Florida, the NWS has been prone to overwarning, stressing the worstcase scenarios. The problem is that the overwarnings are becoming very costly to businesses. You can't do much about an approaching hurricane, of course, but by working with a business-focused weather consultant,it is possible to anticipate and be proactive in these circumstances, and figure out the potential risk to your sp ecific site. - Take off the blinders. Many times DC managers underestimate how vulnerable they are to significant weather events at distant points in the supply chain."I can't tell you how many times over the years I've heard of people running out of parts or experiencing other supply disruptions when the weather was clear at the distribution center and clear at the customer's or supplier's location, but there was an ice storm, snowstorm or flood in between," says Smith.
If your business depends on your ability to receive raw materials or ship finished products, you'll want to keep an eye on the weather along the entire supply chain. As soon as you hear of a potential disruption along your supply route, you can begin to coordinate with your customers."You can't wait until there are 15 inches of snow on the ground to decide what you're going to do," Smith says. You need to ask customers how they want to plan for the event before it happens. For example: Do they want additional parts or inventory sent early? Do they want a contingency plan put into effect to use air freight? - Hope for the best, but prepare for the worst. One mistake many managers make—particularly when building a new facility—is gauging hazards from statistics drawn from an inadequate time period, according to Smith. In some cases, companies look at averages over as few as three to 10 years, he says, which can be very misleading.
"For example, if you had used data taken from the last three to 10 years on the potential threat for roof loading due to heavy snow in Denver, you wouldn't get much useful information because the last 10 years have been relatively snow-free," says Smith. Yet after a decade of winters that featured a relatively light accumulation,on Wednesday, March 19, almost seven feet of snow fell in the Denver area, making it the worst blizzard in almost a century and the second worst in Denver's history. Fire officials reported that roofs caved in on approximately 100 homes, businesses and other buildings.
Smith recommends that businesses review at least 30 years' worth of records, and preferably 50 to 100 years' worth (which are also available), to get a true idea of just how bad things could get. And, no surprise here, he also points out that using a weather risk management service can provide crucial advance warning ("Though no one expected the Denver roof collapses," he reports, "the information we put out to our clients did mention this possibility").
Could early warning have helped avert a disaster? It's hard to know. But one thing seems clear enough: With advance information, you could at least break out the snow melters and roof rakes. And maybe call up and thank the weather guy.