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Weathering Supply Chain Disruptions Better with Analytics

Weathering supply chain disruptions is a challenging and complex task. Hurricane Harvey may well be one of the costliest natural disasters in U.S. history, with a projected price tag of $160M. As Hurricane Irma continues its journey, human costs of this natural disaster are still being tallied. Close to seven million Florida residents are without power as of Tuesday. And while the Gulf of Florida took the largest punch, all parts of the Sunshine State were rocked by Irma in one form or another. The combination of heavy rain, flooding, storm surge and Category 3 hurricane winds has devastated some roadways and felled electrical poles and lines, making travel nearly impossible.

Fuel and truck shortages could last days or even weeks. The Department of Energy reported a 16-cent jump in the national price of diesel fuel for the week following Harvey, but data tracked by Breakthrough Fuel shows more volatility day-to-day following the storm, and continue to rise through Monday, where prices are up 25.2 cents per gallon.

Breakthrough Fuel notes, several states have seen even larger price jumps, including Virginia, South Carolina, North Carolina and Georgia—all have seen wholesale prices rise about 35 cents per gallon. These increases are due to the Colonial Pipeline, which supplies all of these states, operating at a reduced level as Houston refineries continue to return to normal post-Harvey. And because Florida receives the majority of its refined products via ocean shipments, prices are affected by road and port closures following the storms.

Supply Chain Disruption Impacts

The impacts to supply chains from Hurricane Irma is harder to quantify at this point. We know that logistics managers have been challenged with port, airport closures bringing freight and road transportation to a halt. Major industries affected by the logistics disruptions include retail consumer goods, food, construction materials, machinery, plastics, petrochemicals, and energy.

Visualize the magnitude of seven million evacuated Floridians filling roadways as they return to their homes and you start to imagine how that also will affect goods-in-transit. Stores will have out of stock situations compounded by power outages and replenishments delayed until roads are cleared of debris and safe for travel.

To relieve some of this burden, Governor Scott announced that the state police would escort gas tankers from the ports to the stations so they could bypass clogged roads. Weight restrictions were lifted on fuel trucks as well as the maximum number of hours truckers are allowed to drive.

Stephen Bennett, COO of Riskpulse, a supply chain risk analytics firm says, “Shipping capacity is severely limited across the eastern two-thirds of the country. We’ve heard that truck capacity is running about 30% of what would normally be expected in the Southeast.” Florida’s main exports are agricultural products, and that industry took a severe blow from Irma. Bennett says that the combination of wind and rain caused damage to citrus crops with significant tree damage in the central Florida citrus belt.

Benefits of Supply Chain Digitization

Digitized supply chains can’t remove hurricane or other natural disaster’s impacts to supply chains, but they can mitigate supply chain disruptions. How?

Companies already using analytics software to manage goods in transit will have the benefit of gleaning insights from the volumes of big data accumulated. And to maximize optimization, they should also analyze historical data to forecast what might happen down the road.

For a company to be as competitive as possible, they should have a variety of analytics—descriptive, predictive and prescriptive.

  • Descriptive  Analytics uses data aggregation and data mining to provide insight into the past and answer: “What has happened?”
  • Predictive  Analytics uses statistical models and forecasts techniques to understand the future and answer: “What could happen?”
  • Prescriptive  Analytics uses optimization and simulation algorithms to advise on possible outcomes and answer: “What should we do?”

Descriptive statistics are what you use to determine counts or aggregates, for example, stock inventory levels or total expedite fees or year over year (YoY) change in sales. Another use case would be to analyze which items were most in demand post-disaster and use that information for better planning and in conjunction with the next type of analytics, predictive analytics.

Companies use predictive statistical algorithms to forecast what might happen in the future. Forecasting is achieved by combining historical data found in ERP, CRM, HR and POS systems to identify patterns in the data and applying statistical models and algorithms to capture relationships between various datasets. Predictive analytics can be used across the organization, from forecasting customer behavior and purchasing patterns to identifying trends in sales activities. They also help forecast demand for inputs from the supply chain, operations, and inventory.

Prescriptive analytics go beyond descriptive and predictive analytics by recommending one or more possible courses of action. Because they are able to predict multiple futures they allow companies to assess a number of possible ‘what if’ scenarios and see outcomes based on their actions. Prescriptive analytics use a combination of business rules, algorithms, machine learning and computational modeling procedures. These techniques are applied to inputs from many different data sets including historical and transactional data, real-time data feeds, and big data.

What Analytics Success Looks Like

Home Depot is one retailer that is leveraging all three analytics to minimize supply chain disruption with great results. Burt Flickinger, managing director of retail consultancy Strategic Resource Group says, “They are a clear leader with disaster response and their strategic planning during such times is better than any retailer globally,” he said. Home Depot followed a plan perfected over many hurricane seasons, which minimizes supply chain disruptions and ensures that it can continue to deliver essential materials and equipment to the affected areas. It is also designed to allow them to capitalize on a surge in demand for its products once repairs begin. While discount chains or department stores would miss out on revenue because of lost business, Home Depot has made investments to digitize their supply chain. The result is impressive a supply chain that is nimble and agile enough to weather hurricanes better and even to turn what is a loss for their competitors, into a profitable event.