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When devastating storms, hurricanes and other natural disasters strike, they can cause chaos, product shortages and suffering. Supplies are often short in disaster areas, with customers frantically searching for essential items. However, adept use of sophisticated information tools allows retailers and suppliers to moderate the effect of natural disasters by "weatherproofing" the supply chain. That means diverting product shipments, placing inventory in forward locations and anticipating potential spikes in demand.
A large retail chain's response to Hurricane Katrina in 2005 illustrates the effectiveness of weatherproofing the supply chain. The retailer used its enormous distribution network to fully stock its shelves and bolster store inventories ahead of time. It was fully prepared for massive increases in demand before and after the hurricane struck. While state and federal officials were widely criticized, the retailer was lauded for its logistical efficiency and careful disaster planning. The company reportedly had 45 tractor-trailer trucks full of goods ready at its distribution center in Brookhaven, Mississippi before Katrina struck.
Behind the scenes, the retailer's state-of-the-art information systems played a key role in making sure the right supplies were in the right location at the right time. The company's Hurricane Katrina plan is an excellent illustration of the two major issues in weatherproofing the supply chain: information transparency and responsiveness.
In times of crisis, information transparency is critical to providing visibility into the movement of product and understanding the impact on operations. Information transparency has several components, including:
• The ability to analyze products in the supply chain, including quantities, location, shipment schedules and product carrying costs.
• Visibility further back in the procurement/distribution process-tracking product movement from the manufacturer to retail distribution centers.
• The ability-at any point in time-to locate products that have been acquired but not delivered.
• Flexibility through the sharing of intelligence and key supply chain details with business partners.
For example, in a weather-related crisis, a retailer is likely to face disruptions in receiving products allocated to affected areas, particularly products that are en route. If the retailer, carrier, and supplier have the same real-time product tracking information, product can be rerouted and scheduled for a nearby distribution center or another forward location.
Information transparency is the only way for retailers to gain the responsiveness they need to sense and react to changing demand. It also allows them to "shape demand"-moving product out of harm's way by re-allocating it to other areas, and using promotional events to move more product in those areas. This type of responsiveness can help maintain top-line profits even during an emergency.
There are several kinds of product movement intelligence tools, including RFID tagging on pallets and cartons. Such tools allow visibility into individual trucks, their contents and the exact location of product on the truck. The latter information is vital if a truck is rerouted since it will need to arrive at multiple destinations in the right order, facilitating efficient unloading.
Product movement intelligence tools are also critical to making good financial decisions in a crisis situation. Supply chain executives need full cost visibility, including carrying, shipping and purchasing costs. They must to be able to answer "what if" questions, such as the impact of changing a transportation option on costs and margins.
A second type of responsiveness tool is the ability to anticipate demand changes. Storms and other natural disasters are rarely total surprises, but companies have a very short period of time in which to react to them. The key is the ability to sense and react, and that comes in several ways.
Single Point of Demand
The best approach is to drive the supply chain by using a single point of demand. That means taking inventory from the chosen consumption point-typically retail transactions-and aggregating that information to determine how much product will be sold in each location, how much product needs to be in the distribution network, and finally, how much product individual stores must buy and when.
Added to that is the ability to factor in unscheduled events, such as natural disasters, that might spike or shift demand dramatically. After such information is automatically connected with supply chain activity, users can act on a set of recommended actions.
Using a single point of demand means filtering out other demand "noise" from the supply chain. Traditionally, companies have tried to forecast demand by aggregating information from distribution centers and retail stores. This approach produces inaccurate demand estimates. What is needed is a single demand signal at the lowest point of consumption, which is typically in the store or on the Web when a consumer buys a product. Using a single point of demand leads to greater demand visibility because time is not wasted reconciling information from different units inside the company. This approach has allowed companies to "de-bottleneck" a great deal of inventory. It also gives companies a true picture of demand and eliminates problems such as a distribution center overriding an order because of its own "rules."
Single point of demand information also allows more effective labor planning and warehouse scheduling. This is particularly important in emergency situations, such as natural disasters. For example, if a company is expecting high volume on a Monday, low volume on a Tuesday and resumed high volume the rest of the week, it can respond by scheduling people effectively and planning for asset replenishment back through the supply chain.
Another essential feature for weatherproofing the supply chain is demand shaping. If a disruptive event such as a major storm is predicted in one area, retailers need the ability to increase sales at other locations to protect top-line profits. That may include developing an unscheduled promotion and diverting certain non-essential products from the storm-affected area to the location where the new promotion will take place.
To be able to shape a scenario like this, retailers must know the true costs of and delivery times for product in the supply chain. They can then "shape" demand based on the supply chain's capacity constraints, which differ for each company. For example, a large supermarket chain might shape demand based on the fact that they have perishable goods with a three-day window, so they can't move products too far from the original destination. On the other hand, if a retailer has a large distribution center with goods on pallets that can be transported long distances, the retailer can run a different kind of sales event and optimize the investment.
Mitigating the Effects
Hurricanes and other natural disasters, while devastating, can be mitigated through good planning. It is the responsibility of retailers and suppliers to help weatherproof the supply chain so it can withstand and help respond to the dislocations caused by these events. By using today's advanced planning and information tools while pursuing the twin goals of information transparency and responsiveness, we can move a long way toward that goal.
Michael Matacunas is vice president of product strategy at Manhattan Associates. Visit www.manh.com for more information.
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