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.
Dianna Gee, head of communications for Walmart disaster response, says the retailer last week identified 900 stores that the storm could potentially have touched. Starting Tuesday a week ago, she says Walmart started placing orders for goods people would need for the storm. By the weekend, she says Walmart inventory managers had entered post-storm mode. By the time the storm came crashing down along the East Coast, she says trucks were loaded and waiting to head out.
"As soon as it's safe, we can have those trucks on the roads so we can make trips to those stores to replenish items in high demand," Gee says.
Trucks headed for the snow-covered mountains of West Virginia carried shovels. Trucks headed for parts of the Northeast still blanketed by a blackout carried flashlights and batteries, but not much milk. Most of them carried water, the one item Gee says is in highest demand after a disaster. Of the 900 stores possibly affected by Sandy, around 300 ending up closing due to the storm. By midday Tuesday, Walmart says more than 200 of those had reopened, and by Wednesday just 35 were still closed, mostly in New Jersey.
Even then, Cohen says those closures aren't likely an inventory issue. "It isn't because they don't have stuff to sell," she says. Walmart says it won't reopen stores if doing so would put workers at risk.
Walmart was praised after Hurricane Katrina for its responsiveness compared to the federal government's botched efforts. But for a company that's succeeded in retail the way Walmart has, it's hardly surprising that it would invest in systems to track flooded roads and power outages with as much zeal as any emergency management agency. For a company like Walmart, a normal day doesn't look that much different than a disaster day, at least from a supply chain perspective. The real disaster for retailers is not having what a customer wants and losing that person to a competitor.
"We do this every day. We're constantly moving merchandise," Gee says. "We're able to use our logistics expertise in times like this to focus on deliveries and move that merchandise."
Beyond any one company, Sandy hasn't done much to disrupt the normal flow of commerce nationally and internationally because the world doesn't rely on New York and New Jersey for exports, Cohen says. For example, she says, compare the current disaster to the massive flooding last year in Thailand, a hub of the world's hard drive industry. Because the supply is so concentrated there, the flooding caused hard drive shortages and sent prices rising. Similarly, a big earthquake in one of China's major manufacturing centers would probably mean more empty shelves in the U.S. than nearly any disaster here.
The biggest exception to New York's status as a place that takes rather than makes � the financial markets � shows the supremacy of supply to meeting demand. The closure of Wall Street had a ripple effect felt around the world.
"If you think about what New York sends, they send financial information. And they just got taken down," Cohen says. "That's what they're a supplier of, and you can see how the rest of the world is affected by that."
