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Saturday, July 26, 2014

When Just-In-Time Is Hit by a Hurricane

The East River, surging during last week’s hurricane. Credit: David Shankbone

New York Harbor is one of the largest harbors in the world and helps manufacturers in New York, New Jersey, Pennsylvania, Connecticut and beyond by maintaining supply chain controls to keep shipments flowing and materials coming in the door. But big storms, like last week’s Hurricane Sandy, can wreak havoc on well-planned timetables.

The Daily Beast has a story about the negative impacts being experienced among just-in-time (JIT) manufacturers that rely on New York City logistics infrastructure. TBD pointed to a New York Times article that revealed the harbor handled $208 billion in cargo last year. The region as a whole is responsible for $3 trillion in output, or “roughly 20 percent of the country’s total gross domestic product.”

The Times noted economists are predicting that the storm will drive growth down about half a percentage in the fourth quarter, which is significant, as they had expected growth “to reach an annual rate of 1 to 2 percent before the storm.”

What is a JIT-dependent manufacturer to do in such a situation?

The Daily Beast notes that companies with the resources can purchase generators and establish backup or primary self-suffiency in case the local grid goes down. But this expensive solution is not available to most shops.

After a large earthquake in Texas last year, Reuters published a lengthy article surveying manufacturers about their disaster plans. One of the pieces of advice echoed throughout was prioritizing information — a task that is hard on many companies.

“When it comes to the supply base, companies tend to focus on the level below them,” Dan Cheng, A.T. Kearney’s automotive leader, told Reuters. “It’s simply time consuming and cost prohibitive to go deeper than that across your supply base.” Emergencies can highlight the need to do so.

However, communicating with customers and finding workarounds to emergency-impacted supply chain links is key. Furthermore, focusing on different levels of supply chain is important to recognize problem areas before they happen. For instance, if one company or one region is responsible for the majority of materials or services, what happens when they go down?

“If you’re saving 5 pennies per unit, then the $100 million you could lose in a disruptive event doesn’t show up in your results today,” Sunil Chopra, a professor of operations management and information systems at the Kellogg School of Management, told Reuters. “That’s what drives companies toward single-sourcing. But how many units at 5 pennies per unit do you have to produce to make up for that big loss?”

Has your business been affected by the hurricane? Tell us your story in the comments below.

–Brian Lane

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