The supply chain for many small parcel shipping companies is typically long. Products are often made in distant lands, travel on oceans and waterways, arrive at ports, are then transported to warehouses, from where a third-party logistics provider delivers the product to its intended destination. In a stable world, shippers and customers alike can expect a product to be delivered within the promised time window. However, in a world facing high levels of uncertainty caused by war, pandemic, political instability, raw material shortages, freak accidents (recall the regional and national impact of the bridge collapse in the Port of Baltimore caused by a container ship), and weather, the shipper must work overtime to ensure customer expectations are met at no additional cost, despite these uncertainties.
In this piece, we focus on how shippers can hedge against weather-related disruptions. Flooding, drought, hurricane, and wildfires are factors that can impact links in the supply chain simultaneously. Flooding or tsunami in a factory near the coast can disrupt production and create supply shortages. As has been witnessed in the Panama Canal, drought can impact shipping costs and lead times. After more than a year, only now is shipping approaching normal levels since a 50-year drought hit the Gatun Lake region in Panama in early 2023. The west coast wildfires are negatively affecting the shipment of goods due to road buckling, shifting of railway tracks, route diversion, and a reduction in transportation personnel due to poor health of people in the wildfire areas. Hurricanes also have a significant impact because their timing, location, direction of travel, and severity of impact are extremely difficult to predict.
The National Oceanic and Atmospheric Administration (NOAA) is predicting between 8 and 13 hurricanes this season. NOAA is also predicting 4 to 7 major hurricanes – with more than 110 miles per hour winds. The water surface temperatures are near an all-time high. There is a possibility of La Nina emerging this season. Both factors could significantly impact supply chains.
Small package shippers can protect against these uncertainties in five ways. First, to the extent possible, sourcing products from geographically distributed warehouses will help hedge against disruptions. If these warehouses rely on ports or shipment routes that are geographically distributed, the supply chain can be made more resilient. Ports may take a long time to recover from a hurricane causing a shipping backlog. Warehouses may be impacted by roof damage or power supply disruptions. Even if warehouses and ports are not severely impacted by bad weather, the transportation route from the port to the warehouse or from the warehouse to the customer may be operating at reduced capacity due to road flooding, erosion, or bridge damage. Delivery lead times could spike. Having more than one source of supply will help mitigate delays and shortages.
The celebrated quality management expert, W. Edwards Deming, advocated using a single source for manufacturing and logistics operations. I wrote in BioProcess International that while Deming’s fourth point merits consideration in a stable world, it is becoming ever more important for companies to work with at least two distinct suppliers as well as supply chains to protect against uncertainties caused not only by weather, but war, material shortages, labor shortages, strike, and other reasons. As is well known, the semiconductor chip shortages in 2021 led to a severe reduction in the production of new cars, which in turn led to increase in price of used cars, leading to high inflation in the economy.
A second way to hedge against weather-related uncertainties is for warehouses and shippers to be nimble and fulfill orders a few days ahead of the requested time to areas where a storm is anticipated in the coming weeks. This will require businesses to carry additional inventory, having up-to-the-minute information on products and transportation assets, working with customers to receive products prior to their scheduled delivery time, being able to adapt to changes on the fly, and divert shipping to meet the needs of customers in affected areas and unaffected areas.
Third, providing accurate and timely information goes a long way in managing customer expectations. When an entire region is affected by a major hurricane, customers in that region are willing to accept delays in shipments. However, customers want to know when they can expect to receive the goods so they can make changes to their own operations in the short term. Regardless of the severity of the weather situation, producers and shippers alike must work hard to ensure the promised delivery lead time is not extended multiple times. Customers may tolerate revision of product delivery timeline once, but not much more. Companies may also want to explore providing incentives to customers to shift their demand to periods when the weather is more stable and predictable.
Fourth, businesses must have a robust plan to recover from disruptions and attain steady state operations in days or weeks, not months. The plan must address short-term and long-term aspects. In the short term, sound recovery plans must be developed, documented, and in place. Tabletop exercises for business continuity must be practiced and key personnel must be trained to implement contingency plans. Developing long term plans requires rethinking sourcing and distribution strategies. Sourcing locally or nationally, from two or more vendors, will help mitigate the negative aspects of a weather-related event. It is important to develop strategic partnerships with upstream suppliers and downstream collaborators, including third-party logistics providers. Such relationships offer benefits in environments characterized by uncertainty. Short supply chains with fewer links are favored to longer ones with more links. It will also make the supply chain less vulnerable to exogenous events.
Finally, investing in predictive analytics could pay off during emergencies. Access to weather data – historical, real-time, and data from weather prediction models, knowing where the weakest links in the supply chain are, developing contingency plans that bypass these links, consideration of the impact of non-logistical aspects such as power and communication disruption, can help build robust predictive models in house. While many small companies may not have the physical, informational or human resources to build such models themselves, proactively working with logistical solution providers can help mitigate the impact of unanticipated weather events.
Sunderesh S. Heragu is a Regents professor at Oklahoma State University. He is president-elect of IISE, the world’s largest professional society dedicated to the support of industrial and systems engineers. He is also a member of INFORMS, the largest international association for operations research and analytics professionals.
