When the Chain Snaps
UPS logistics group braced for a supply chain disaster Sept. 11 when, following the collapse of the World Trade Center towers, it found itself without a key distribution center used to keep critical repair parts flowing to customers.
Only 150 yards from the WTC, the distribution center was destroyed. Making the situation worse, a second UPS LG service parts hub in Manhattan had to be evacuated because of safety concerns after the terrorist attacks, and a third was inaccessible because some roads were temporarily closed.
Officials at the supply chain services provider were in a crisis mode, but they were also in luck. In 1995, soon after becoming an independent subsidiary of United Parcel Service of America Inc., UPS LG began implementing supply chain tracking and visibility systems that, in the aftermath of the terrorist attacks, helped speed the $1 billion companys efforts to source parts from alternative facilities on Long Island, N.Y., and in New Jersey. Although UPS LG customers experienced some delays for several weeks after the attacks, the company kept delivering goods, even to customers that had sourced service parts from the destroyed distribution center.
"Nobody anticipated a facility being destroyed, but we did have the redundancy of product available in the area," said Lynnette McIntire, director of marketing for UPS LG, in Atlanta. "We figured out where the parts were and had hourly shuttles across the [George Washington Bridge and Lincoln Tunnel] to get them there."
Among the many lasting effects of the Sept. 11 attacks has been a growing awareness among IT managers and others of the need to shore up supply chain execution and planning practices and systems so that the chains can keep operating smoothly, even through a disaster. For most companies, the response has stopped short of dismantling just-in-time manufacturing and supply practices that rely on razor-thin inventories and precise execution, experts say.
But the need to harden supply chains against disaster is motivating many companies to deploy systems that provide them with more real-time visibility into supply networks. Its also leading them to consider new possible causes of disruptionfrom stalled air travel to lost facilitiesand to include those scenarios in their strategic planning.
Theres little doubt the attacks caused major disruptions in global supply chains. Air transport was halted for days, and shipments across U.S. borders were delayed because of tightened security. In addition, anthrax scares caused time-consuming scrutiny of incoming shipments. Ford Motor Co. announced it was forced to stop production at some plants because of delays in receiving parts by air and from overseas.
The impact of disasters on supply chains can go straight to the bottom line. A Georgia Institute of Technology study found that, after a company announces a supply chain disruption such as a production or shipment delay, its stock price can fall an average of 8.62 percent on the day of the announcement and can drop as much as 20 percent over the next six months.
After the terrorist attacks, UPS LG faced slowdowns in shipments around the world because of the shutdown of commercial air travel and the additional scrutiny at borders. Its supply chain management systems, which provide visibility into the status of goods and inventories in warehouses, played a critical role in helping officials find alternative ways to supply customers goods.
UPS LG originally developed the systems to meet the often-rigorous supply chain performance requirements of customers. Its major supply chain management system is a combination of internally developed code and packaged software that UPS LG has customized and labeled Global Tracker.
The system monitors the movement of goods throughout the supply chainfrom when they leave manufacturers plants and are in transit until they arrive at one of UPS LGs 450 distribution centers on their way to being delivered to customers. More important, the system can alert UPS LG officials and key customer contacts by sending e-mail and wireless alerts when a shipment misses a milestone, such as arriving at a dock late, said Paul Gettings, senior vice president of customer solutions at UPS LG. A similar system, called Service Parts Logistics Universal Solution, handles tracking and notification for service parts and product returns.
The terrorist attacks are causing companies to recognize the need for the kind of visibility into supply chains that UPS LG has developed. Many are considering an increasing array of visibility applicationsalso called supply chain event management and supply chain performance management products, said Steven Gold, a consultant at KPMG Consulting Inc., in Chicago.
The tools are coming from a growing list of specialized vendors such as Viewlocity Inc., WorldChain Inc., Celarix Inc., SeeCommerce and Arzoon Inc., along with traditional supply chain management vendors such as i2 Technologies Inc. and Manugistics Group Inc., which are adding visibility capabilities to products. These toolsgenerally Web-basedprovide real-time information about goods location and status by tying into companies and their partners internal systems, such as supply chain execution and enterprise resource planning applications.
Sears, Roebuck and Co., for example, is implementing software from SeeCommerce to provide it with real-time information about the movement of goods from suppliers and among its 900 stores. The software will provide a single view into supply chain systems deployed at the retailer, from legacy warehouse management systems to collaborative forecasting and planning systems. That will make it easier to monitor activity in the event of a disaster, said Gus Pagonis, head of supply chains at Sears and president of subsidiary Sears Logistics Services Inc., in Hoffman Estates, Ill. Currently, when employees monitor the supply chains in an emergency, they must check the status of some 20 different systems to gather data.
Better visibility alone, though, wont fully prepare companies for disasters that can snarl supply chains. They also need to plan. Traditional supply chain planning tends to focus on known constraints on systems such as manufacturing bottlenecks. The biggest shift companies must now make in the wake of the terrorist attacks, experts say, is reviewing current scenarios and designing new ones to take into account disruptions they hadnt considered. Companies that rely heavily on air transportation for critical supplies, for example, should consider the impact of alternative transportation if air traffic is shut down. Companies should also consider developing plans for the possibility of a major ground transport route being closed, as happened in New York after the terrorist attacks, said Kevin OMarah, an analyst at AMR Research Inc., in Boston.
Here, too, software tools that can help are emerging in the form of supply chain scenario planning and design products from vendors such as Optiant Inc. and LogicTools Inc., as well as functionality within supply chain planning and forecasting software from vendors such as i2 and Manugistics. The tools can allow a manufacturer to evaluate the impact of increasing safety stocks in a particular segment of the supply chain.
Technology can improve supply chain visibility and planning, but it alone cant enable a company to respond effectively when a disaster hits supply chains. Companies also need to have policies, procedures and organizations in place that allow them to quickly monitor and rearrange supply chains during a major disruption, experts say.
Sears takes such disaster planning seriously. Pagonis, a former U.S. Army lieutenant general who oversaw military logistics for the Gulf War, has brought that logistics experience to bear at the retailer. Starting in 1993, he set up a two-tiered response process to allow Sears to respond to potential disasters.
When signs of a possibly disruptive event reach Sears, the company sets up what Pagonis calls a contingency cell to monitor the situation. A cell consists of a few people from areas such as transportation, warehousing and lines of business. If the situation worsensif, for example, a snowstorm turns into a blizzardthen six to eight people form an emergency operations center. Housed in a special room at Sears headquarters, they take turns monitoring the disaster; watching the status of store and home deliveries; and communicating changes to stores, lines of business and transportation providers. About 100 people are trained to run the operations center.
On Sept. 11, for example, Sears went quickly to operations-center status after the second plane hit the WTC. From there, employees helped the company avoid bottlenecks that threatened to strangle Sears home-delivery supply chain. With 8,000 home deliveries scheduled for Sept. 11, planes grounded and some roads closed, Pagonis had the command center inform stores making deliveries to add an extra week to new home-delivery schedules.
"The key to success is to not overreact and not to kill your people," Pagonis said. "A good leader prepares for crises, so when they occur, they become routine."
A routine disaster? That may be an oxymoron. But at least companies that learned a lesson from the terrorist attacks should be able to keep supply chains humming even after a disaster.