Supply Risk Management - Key learnings from Hurricane Season

07 Nov 2017

Supply Risk Management - Key Learnings from Hurricane Season

Due to hurricane Harvey’s impact on the Houston area, Newell Brands reported serious resin shortages. According to Reuters:

Newell said nearly all its resin suppliers with facilities in Texas and Louisiana had shut their plants for more than a week and some were yet to resume operations.

The resin shortage is expected to persist through the fourth quarter and result in higher prices through 2018.

The company said its search for alternative suppliers met with some success, but costs were significantly higher.

About 70 percent of Newell’s suppliers are in the impacted regions, according to estimates from J.P.Morgan.

Could Procurement Risk Management Avert these Shortages?

There are several factors that attributed to the resin shortages.

• Supplier Plant Location - Hurricane season occurs every year. If key suppliers are located in this region, even if you have multiple suppliers, the supply chain is at risk. An improved strategy would select suppliers from multiple regions. This would include single source suppliers with alternate production site contingency plans.
• Inventory Strategy - just in time inventory and lean practices would increase the supply risk. Even a short-term supply disruption will disrupt production lines due to bad weather. Increasing inventory during the hurricane season is a good option. I once visited an injection mold supplier that had one year of resin inventory on site.

With key suppliers impacted by the hurricane, purchasing power has been significantly decreased. Alternate suppliers outside of the impacted region are charging a higher spot price. Resin supply shortages and higher prices will result.

Supply Chain Risk Considerations

The supplier risk assessment template evaluates several criteria relative to supply chain. If high risks are identified due to the supply chain concerns, proximity to bad weather, a further drill down may be needed. In this case industry supplier manufacturing locations should be mapped. Regional concerns should be addressed as part of the sourcing strategy.