Thursday, November 1, 2012

Retail: How Store Shelves Stay Stocked Even After a Sandy-Sized Disaster

Retail: How Store Shelves Stay Stocked Even After a Sandy-Sized Disaster:

Empty supermarket shelves before Hurricane Sandy, Montgomery, New York
Empty supermarket shelves in Montgomery, New York, before Hurricane Sandy. Photo: Daniel Case/Wikimedia Commons

The day Hurricane Sandy made landfall, the Jersey City, New Jersey, warehouse for food distribution giant Sysco Corp. (SYY) sent out 30,000 cases of food and drinks. Most of the shipments were headed across the Hudson to New York City. On Tuesday, the day after the storm ravaged the city, the warehouse sent out none.
Yet while news of flooding, power outages, downed trees, and other storm-inflicted wreckage abounds, you won’t hear stories of mass starvation in the streets. Food may not be moving in or out of the city, but the data-driven supply chains perfected by some of the world’s biggest companies in the pursuit of profits have become so resilient that even a cataclysm like Sandy registers as little more than a logistical hiccup. While the subways have stopped indefinitely, few in the storm’s path will have to deal with empty shelves for long, if at all.
In fact, the main problem facing Sysco as its trucks sit idle while waiting for the bridges and tunnels into New York to clear is what to do with too much stuff still coming in from suppliers not stopped by the storm. “With that lull, we’ll be filling up shelves in our warehouses faster than we can get product out,” says Charley Wilson, a Sysco spokesman, adding that generators in the Jersey City warehouse have kept refrigerators there working.
Wilson says the key adjustment Sysco made ahead of Sandy was to shift shipments to mainly non-perishable goods to ensure customers would have food to last through power outages. The company also prioritized getting orders to institutions that would have to keep large numbers of people fed through the storm, such as hospitals, hotels, airports, shelters, jails, and college campuses. Restaurants will stay near the bottom of the list as the recovery proceeds. But Wilson says the process of getting back to normal won’t drag out. “It’ll be a week or so of business-not-as-usual. But we’ll get back to business-as-usual eventually.”
Large companies like Sysco with nationwide reach and a long history of managing supply chains can adapt quickly to natural disasters because they’ve been there before, and they have the data to show for it. Over the years, as real-time inventory tracking and analysis has become the norm, companies know what people buy before and after disasters. They know how demand has varied between a Gulf Coast hurricane and a New England blizzard. By cross-referencing that granular data with the latest weather predictions, companies can forecast changes in their supply chain needs in parallel with coming storms.
Shoshanah Cohen, director of the Global Supply Chain Management Forum at Stanford’s Graduate School of Business, says the most flexible supply chains have three things going for them: Scale, transparency, and leverage. The bigger the distribution network, the more easily a company can reroute its supply chain to pull merchandise from warehouses beyond a disaster’s reach. The more transparent a company’s inventory — that is, the more closely a company can come to knowing the exact location of every item in real time — the more easily a store can know if a particular product it needs is available. Lastly, the more leverage a retailer has over its suppliers, the more likely that retailer is to get resupplied first.
Taken together, these factors combine to prevent a few broken links from severing the whole chain. “It’s a network effect. And what that does is dampen the risk,” Cohen says.
It comes as no surprise that Walmart, the world’s biggest retailer, exploits that effect better than anyone else. Walmart’s just-in-time supply chain has propelled the company to its dominant spot among shoppers. That same retail agility allows it not just to respond quickly to storms like Sandy, but to prepare as soon as a potential weather disaster shows up in the long-range forecast.
At Walmart’s Bentonville, Arkansas, headquarters, the company’s disaster response center has a staff of 50 that since Sunday has been operating much like an incident command center set up by first responders, though with a different goal. An in-house meteorologist works with specialists in everything from energy and transportation, to inventory and communications, to make sure stores stay open as long as possible and reopen as soon as possible. Walmart uses its predictive analytics not just to keep stores well stocked with emergency supplies ahead of storms like Sandy, but to “backfill” distribution centers with what the company knows customers will need afterward.

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