Battered, not broken, supply chain copes

In the wake of Katrina, buyers and supply chain managers think contingency planning

By David Hannon -- Purchasing, 10/6/2005

If you didn't have a contingency plan in place in your supply chain after the attacks of September 11, you sure better have one in place after Hurricane Katrina. Surprisingly, many buyers and supply chain managers say they did not have such a plan in place for the closing of a major port like New Orleans. While more than 45% of buyers polled in a recent PURCHASING magazine survey taken a week after Hurricane Katrina said they expect supply disruptions as a result of the storm, a surprising 46% of respondents said their supply chain organization did not have a contingency plan in place for such an event and another 12% were unsure if their organization did.

"At the very least, you can use this as an excuse to review your own disaster/contingency plan and discuss/plan how your company would react to a business-closing disaster," said one buyer in the survey. "How fast could your firm be up and running? With what personnel? Inventory? How good is your business insurance and business continuation plan? Katrina gives a good lesson in preparedness planning."

Another survey respondent said his parent company in Japan has such a plan in place for disasters but he was not sure of its results in the wake of Hurricane Katrina.

John S. Nyquist of the Minn-Dak Farmers Cooperative says his organization has a documented contingency plan in place and was prepared for such a problem, despite having a relatively new staff.

"We stay in close touch with our suppliers, which is part of the plan," he says. "Communication is key. Our suppliers were able to position themselves so we did not have a problem. And always have one or more additional sources other than your primary supplier."

Of most immediate concern to buyers were shipments in transit to New Orleans when the storm hit and shut down the port. Despite the fact that many respondents expect supply disruptions, only 40% of those polled said they had been in touch with their logistics providers/organization to check the status of shipments while 46% said they had not. Those are surprising results, given the Port of New Orleans is the top port for a variety of commodities coming from South America and Asia including coffee, natural rubber and steel.

In the days and weeks following Katrina, Gary LaGrange, president of the Port of New Orleans, was hopeful that the port would be up and running again at full capacity.

"It's vital that we open, get these people working and some activity in these terminals," LaGrange said. "If for no other reason, other than psychologically, this could be the first step to New Orleans' recovery."

But in the mean time, there were shippers scrambling to re-route shipments bound for New Or-leans. News reports provided details of shippers with boats headed for the Port of New Orleans literally sitting on the water until supply chain and logistics planners could find a backup plan. A number of vessels were diverted to Houston if possible.

"We're getting a lot of inquiry calls from shippers trying to figure out what to do," said Felicia Griffin, a spokesperson for the Port of Houston, which was gearing up its operations for the major increase in activity.

One news re-port said consumer products giant Proctor & Gamble may have had to divert New Orleans-bound shipments to ports as far away as Seattle, although a spokesperson for the company admitted, "That's a little far away."

Diverting shipments last minute can be especially expensive and cumbersome. Different ports are set up for certain operations and knowing which port might be the most viable option for your shipments is best decided ahead of time.

"When moving something to another port, you need to find a place that will be able to handle something quickly," said Aaron Ellis, spokesman for the American Association of Port Authorities, in a recent news report. "Ports have a specific infrastructure in place, and if you are to divert vessels, you need to be able to have areas where ships can connect with trucks and trains or at least have large areas used for mobilization in times of crisis."

Buyers polled overwhelmingly said prices and supply for a variety of commodities would be impacted in the near future (most said the next quarter) but the long-term impact from Hurricane Katrina was a little less clear and varied by industry and commodity. For example, in the chemicals sector alone, responses ranged from more mundane comments like, "Capacity/utilization of chemical plants were not affected by storm," to more serious concerns that Katrina's impact could permanently alter supply and demand balances.

"The U.S. chemical industry has consolidated to the point that many items have become single sourced be-cause there is only one U.S. producer," says Steven Bartholomaus, a purchasing manager with Chemlogics Group. "Many of the U.S. chemical suppliers have retroactively to September 1 increased pricing regardless of the legal and ethical consequences. Many basic key raw materials are in short supply with no expected relief for the next six months. This is consistent with the record amount of plant closures in North America the past two years."

Another buyer in the survey said: "Double-digit price increases by all the major chemical manufacturers have occurred. This, coupled with allocations, spot outages, and long leadtimes has exacerbated a market already at capacity due to China's demand. Our company will continue to be forced to secure larger portions of our requirements offshore regardless of cost."

But most are taking a more calculated approach. "This is still playing out but is likely to have a far-reaching effect," said one survey respondent. "Market price increases will occur across the board within the next two months. Many announcements have already been communicated."

Overall, many buyers in the PURCHASING survey were eager to learn what they could from the disaster and share ideas with others. Here's a sampling of some of the comments received in the survey:

"Listen closely to your strategic suppliers and heed their input."

"Talk to your second- and third-tier suppliers. While your first-tier suppliers may not be affected, if they cannot receive their raw materials, then they may not be able to supply components to your company on time."

"Be as patient as you can. Certain commodities will be in short supply especially those used in cleanup and for personal protection."