CHICAGO — Without warning, a supply chain executive from Wal-Mart told his operations and administrative staff to pretend that a particular distribution facility had burned to the ground. They had until the end of the day to figure out how to service Wal-Mart’s stores without depending on the impaired facility or its displaced staff.
Such training exercises help Wal-Mart make sure its supply chain operations stay flexible, said Gary Maxwell, a senior vice president in the Bentonville, Ark., company’s replenishment division. Maxwell took part in a panel of supply chain experts at the Retail Systems show held in Chicago last month.
Coping with supply chain disruptions is a challenge for many companies, said Andrew White, a research director at Gartner and moderator of the panel. As retailers and manufacturers continue to trim the fat from supply operations and more closely tie investments to demand, it becomes harder to maintain a resilient supply chain. “When you become so lean, the supply chain is very fragile,” White said.
IT systems can help. For example, RFID technology can make staff more aware of events and conditions in the supply chain, White said. The ability to collaborate with trading partners also is a key discipline.
For Procter & Gamble, a well tuned business continuity plan was critical to recovering after Hurricane Katrina swept through the Gulf Coast region last August and left the company’s Folgers coffee-making facilities submerged. “It took our entire production facility offline,” said Jake Barr, an associate director of supply network operations at P&G.
The company’s first priority was its workers. Locating staff was a huge job, Barr said. To help its displaced workers, P&G set up Gentilly Village, a temporary housing facility on the Folgers plant site that accommodates 500 families and is still in use today.
Meanwhile, available P&G employees and contractors took steps to repair and restart the Folgers plant and manage retailers’ coffee supply — when Katrina hit, it affected 40% of coffee consumption in North America, Barr said.
Despite all the hurdles, P&G managed to reopen its Folgers plant on Sept. 19, just three weeks after Hurricane Katrina hit. By Sept. 23, P&G had resumed more than 85% of its coffee production using third-party sources and alternate P&G sites. By November the company had its coffee production and roasting facilities running at full capacity.
Having detailed, up-to-date contingency plans allowed P&G to bring its plant back online quickly, Barr said. There was no time to make plans with the hurricane swirling offshore, they had to already be in place, he said.
P&G’s plans included a fresh water source and secondary suppliers for items such as packing materials. The company also had design images and digital photos of every part of its operations. In the weeks leading up to Hurricane Katrina, P&G had refreshed its disaster recovery plans, which it does on a regular basis so the data stays current, Barr said.
Barr recommends continual testing of backup systems and processes as a part of normal supply chain operations. “Preparing for chaos is an everyday job,” he said.
Other users agreed, flexibility is critical to recovering from a supply chain disruption.
Staffing flexibility, for example, helped P&G get its Folgers business operational after Hurricane Katrina hit. P&G maintains similar operational processes throughout its myriad divisions, which meant that managers from other P&G business lines could step in and help with coffee operations without needing product-specific training, Barr said.
Distribution flexibility also is critical to supply chain agility. Wal-Mart used to have different distribution networks for particular item categories, such as general merchandise or dry grocery goods. “Traditionally we had a very category-focused network,” Maxwell said. “There wasn’t a lot of flexibility. A particular item had to be run through a particular network.”
Today Wal-Mart’s warehouses are more flexible and can handle multiple types of items, he said.
That’s the sort of flexibility SYSCO, a food service distributor, is looking to implement. The Houston company provides meals to restaurants, hotels, schools, hospitals and retirement homes.
“Historically we’ve been a very distributed company,” said Masao Nishi, vice president of supply chain management at SYSCO. It has 70 logistics managers who manage the transportation of goods from SYSCO’s suppliers to its 70 U.S. operating companies, for example.
Nishi is helping the company transition from running dozens of small supply chain networks to one large network that takes advantage of some economies of scale. With respect to the supply chain, the plan is for SYSCO to act like one large company, not 70 smaller companies, Nishi said.
When the transition is complete, the majority of supply chain activities will be run from Houston, supported by regional operations and distribution centers. There are a lot of benefits to centralization, but there’s also increased risk, Nishi said. In the past, the affect of a supply chain disruption was typically limited, because each SYSCO operating company ordered its supplies independently. “Now that we’re going to do it all in one place, we have to make sure that we’re able to handle what we need to manage throughout the country,” Nishi said.
SYSCO is about halfway through its centralization project, he said.
Copyright © 2006 IDG Communications, Inc.