Hurricane Harvey Q&A: What Procurement Practitioners Should Be Doing Right Now

In this disastrous aftermath of Hurricane Harvey, emerging details about supply chain repercussions both locally and nationally have finally begun to paint a fuller picture.

With Houston and its greater regional area comprising such a significant industrial hub, trucking, freight and petrochemical supply have all been frozen to varying degrees, as reported by my colleagues Nick Heinzmann and Sydney Lazarus. Even the metals world has been rocked, as my colleague Fouad Egbaria reported for MetalMiner. But perhaps the biggest hit is the massive uncertainty over the full extent of the medium- and long-term impact.

I caught up with riskmethods' Bill DeMartino, general manager of North American operations, and Heiko Schwarz, the firm's founder and managing director, for a quick Q&A about what procurement professionals have been — and what they should be — thinking about in the wake of the disaster's fallout.

What have you heard procurement practitioners saying or asking about the effects of Hurricane Harvey thus far?

In general, we see folks scrambling, and as they are so busy reacting, we haven’t been able to connect with many of them to get the full story — but we have heard of at least a few instances where suppliers are so severely impacted that they aren’t even responding to inquiries. What this means is that our customers know who is impacted but aren’t even able to get a response from the suppliers, let alone assess the extent of damages which clearly are not understood.

This type of large event highlights the importance of a complete risk management process which includes understanding risk exposure across a category holistically. For example, are all of the suppliers for [a certain] category densely populated geographically, or do they use the same transportations hubs? We have also had some initial discussions with enterprises that are concerned about the potential sub-tier impacts to their supply chain and slowdowns from the port closing.

What are practitioners’ biggest concerns from a supply risk perspective as it stands now?

It’s the unknown impact of the event that is one of the biggest challenges. An example is one of our customers, unable to understand the impact to their suppliers, has already started the process of working with their design team to make slight modifications to their product so that they can utilize alternate parts from another supplier in a different geography. Crisis management at its best. And again, the unknown extends to sub-tiers and shortages that may appear weeks down the line.

What should procurement organizations be doing at this point to mitigate lasting damage to their supply chains and their overall business?

One thing is to ensure that there is a plan to divert and transport anything that was destined for the Port. It’s now thought that the port will be closed for 5 or 6 more days. With the infrastructure so severely damaged, normal modes of communication and collaboration are likely not a near-term option, so leveraging local relationships will be helpful. Information is king. And for those that had an understanding of their risk profile going in and paired sourcing decisions and category risk plans, they should be in a position to enact their BCPs [business continuity plans].

Any other recommendations for companies in the aftermath of this storm?

It’s unfortunate, but as with the major disruptive events before Harvey, many organizations will finally have their wake-up call for the importance of a comprehensive supply risk management program. Enterprises must be risk aware, making risk an integral part of all decision making. A strong Supply Chain Risk Management foundation and generating sub-tier visibility cannot prevent disasters, but it can help to limit exposure and minimize impact. Supplier risk monitoring can be a quick win and an enabler to build organizational momentum to become risk aware. We have started with partners like Accenture to help enterprises on these initiatives. Extending visibility to the n-tier supply chain is a journey. Ultimately these types of events highlight why supply chain risk is not about a single organization sitting on top of the chain and tracking their suppliers and trying to map them. It’s about working with them collaboratively to build a more resilient supply network, sharing approaches and information.

Any parting thoughts on how organizations can better prepare the next time a hurricane hits a key shipping center such as Houston, specifically?

Well, this is a big question as there are many different risk mitigation approaches that can be enacted by organizations. First and foremost, enterprises must understand where the risk is and the potential impact. This information feeds into an overall strategy for a category, including understanding the risk appetite. In the end, it’s not about the event but the impact, your appetite for the disruption, your willingness to reduce that impact by enacting various approaches (such as on-boarding additional supply paths, inventory, etc.) — and then your ability to sense and respond.

UPDATE: Explosions at Arkema Inc.'s plant in Crosby, Tex., made headlines this morning. The company is a big automotive supplier, monitored by a number of riskmethods customers in the auto sector. Their emergency cooling systems became compromised due to flooding, causing the blasts. "They might be able to balance the loss of that factory a bit" across their plants in other countries, Heiko Schwarz told Spend Matters in a follow-up, "but there will be some heavy impacts to some players in the upper tiers."

Don't miss this resource list: Natural Disasters, Risk Management and You.

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