The hurricanes that buffeted the Southeast this summer offer up lessons that CEOs can learn from.
Key is the supply chain, the way goods are transported from factories to final destinations. The storms, including hurricanes Harvey, Irma and Nate, disrupted flows of everything from oranges to pharmaceuticals. Estimates put the storms’ damage at over $100 billion.
While it is much easier to keep tabs on so called Tier-1 suppliers, those that send directly to the manufacturer, it is hard to keep up with lower-rung suppliers with whom manufacturers have very little contact even in the best of times.
And given that CEOs ultimately set the strategy for the overall supply chain, “They must better manage risk,” said Aaron Parrott, specialist leader in Deloitte Consulting’s Supply Chain and Manufacturing Operations Practice. “The drive comes from above.”
Some companies in the Southeast were closed by the storms for days, which, of course, disrupted manufacturing and commerce. One thing to do is question a sole-source strategy, Parrott said.
“You want redundancy,” Parrott said. “Do I have two to four suppliers for that part, or do I have one?”
Overall, it was a lesson in “how to better manage in these critical disasters,” Parrott said.
Unfortunately, lower tier suppliers’ whereabouts may not be known to manufacturers, which means some don’t even know when they will be getting deliveries.
Manufacturers “may not find out for months or even longer depending how complex the supply chain is,” Parrott said.
Chemical and resin companies in Houston that make plastics are among those that could take a while to be heard from. Plus, orange groves were wiped out, meaning product will be coming in from Brazil, a new supply chain to supplement an existing one.
The tourist industry will also be impacted, from the Florida Keys to Puerto Rico. This will have a major effect on human capital, given the thousands who work in the areas’ hospitality industry.
It will also be immensely difficult getting materials to those areas to rebuild.
“It will take years to come back,” Parrott said.