May 17, 2020

One month on: effects of Hurricane Harvey and Irma on industry and supply chains analysed

hurricane irma
irma supply chain
harvey supply chain
supply chain hurricane
James Henderson
5 min
The effects of Hurricane Irma and Harvey have been analysed by IHS Markets
IHS Markit has released a new forecast on the impact of Hurricanes Harvey and Irma on the national and regional economies, supply chains, transportation...

IHS Markit has released a new forecast on the impact of Hurricanes Harvey and Irma on the national and regional economies, supply chains, transportation infrastructure, automotive industry and the crude oil, refining and chemical sectors.

U.S. economic impact

“We currently estimate that the damage from Hurricane Harvey will total somewhere between $60bn to $100bn in 2017 dollars, making it the second most destructive storm on record after Katrina; Irma, at $30bn, will rank sixth,” said Patrick Newport, executive director - U.S. economics for IHS Markit.

“We estimate that the hit to third-quarter GDP growth from these two storms will be about 1.2%: -0.5% from Harvey and -0.7% from Irma.”

Hurricanes Harvey and Irma have disrupted economic activity in the third quarter, but recovery and rebuilding will boost growth in subsequent quarters.

Impact on energy industry

“Compared to prior storms, the increased global connectedness of the U.S. energy industry caused Harvey and Irma to have a greater impact on markets outside of the U.S.,” said Kurt Barrow, executive director – oil markets, midstream and downstream for IHS Markit.

“The energy abundance created by tight oil and shale gas means the U.S. is now a major exporter of crude, refined products and NGLs and increasingly LNG and petrochemicals. As a result, importers of U.S. energy were also affected by these U.S. hurricanes as never before.”

Within a matter of days, one-quarter of the U.S. refining system was offline as three major Gulf Coast refining centres shuttered. After the storm passed, it took several weeks for these plants to return to full capacity due to the inherent complexity of these refineries and some logistics issues with crude oil supply, product offtake or utilities supplies caused by the flooding.

The impact of Harvey and Irma on gasoline prices was similar to prior storms Katrina, Rita and Ike in magnitude and duration. Retail prices across the U.S. were affected as refinery supplies shut down and offshore imports took time to arrive. Imports of gasoline from Europe increased rapidly but prices on both the East and West coasts increased by over 20 cents per gallon relative to crude oil price, those prices then began to decline.

Directly impacted markets like Atlanta and Miami saw higher prices that lasted longer due to the impacted supply chains in these markets.

Impact on Texas, Florida economies

“Harvey and Irma have posed significant short-term challenges but they will not change the favorable long-term growth trends for Houston or Florida,” said Karl Kuykendall, principal economist - U.S. regional economics for IHS Markit.

Houston’s role as an energy and trade hub provided a strong urgency to get the city back on its feet. There were massive disruptions in Harvey’s aftermath but the main levers of Houston’s economy are largely up and running again.

Florida avoided a worst-case scenario with Irma but the evacuations leading up to the storm, widespread power outages in the aftermath, losses in the agriculture industry, and a temporary hit to tourism will cut into Florida’s near-term growth.

Impact on transportation infrastructure:

“The difference in cooperation between all parties this time versus earlier storms such as Katrina was very dramatic; most everyone was as prepared as possible and relief efforts were well coordinated,” said Charles Clowdis, director - industry consulting for IHS Markit.

“Federal, state, local authorities, volunteers and other groups learned from the lessons of Katrina and were better prepared despite the uncertainty of both storms and the lingering rain from Harvey.”

SEE ALSO:

Transportation infrastructure has been restored almost entirely with some delay on local streets in Houston due to the Addicks dam release. Railroads have resumed operations, with some of them having slower train speeds in the Houston area. Ports have mostly resumed operations, with some slower operations in Houston due to closed refineries. Airports have resumed operations in all impacted areas.

Transportation volumes stalled by the hurricanes have started to come back. Transportation rate spikes have also begun to stabilise, but are still higher than they were before storms hit. Tightening in freight capacity, even before the hurricanes hit, will have an effect on increased transportation costs in the third and fourth quarters of 2017. Demand for flat bed and specialized trucks will increase.

Impact on chemical industry:

Chemical producers continue to improve resiliency to hurricane events, with risk assessments leading to reinforced structural systems and added redundancy for critical piping and control systems, implementation of precautionary actions regarding asset operations, and pre-positioned inventories.

“In the next decade the U.S. will build 25% of the world’s needed capacity for new chemicals demand. U.S. chemical exports will double from 2005 levels, linking the global chemical markets integrally to events that affect the U.S. Gulf Coast,” said Dewey Johnson, executive director - chemicals for IHS Markit.

The chemicals supply chain consists of long multi-step chains and combined product chains of precision formulated products. Each position in the chain can present bottlenecks because of inventory availability or inter-dependency of the chemical products.

Due to minimal asset damage, the chemicals sector is recovering rapidly from Hurricanes Harvey and Irma. With that said, various value chains are not back to pre-event production levels due to bottlenecks from feedstocks or unit operations within the plants.

Chemical product supply chains that were already in tight supply (eg. propylene, polyethylene, caustic soda, etc) will see additional tightness perhaps lasting into the first quarter of 2018. A number of the chemical products will see price increases cascading through their supply chains into the first quarter due to an exacerbated tight supply and elevated costs due to recovery and feedstock cost increases.

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Jun 11, 2021

NTT DATA Services, Remodelling Supply Chains for Resilience

NTTDATA
supplychain
Supplychainriskmanagement
Procurement
6 min
Joey Dean, Managing Director of healthcare consulting at NTT DATA Services, shares remodelling strategies for more resilient supply chains

Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.

The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.

A Multi-Vendor Sourcing Approach

“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.

“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.

But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?

“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.

Wielding Big Tech for Better Outcomes

So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry

“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality. 

“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”

Evolving Procurement Models 

From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view. 

“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.

“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”

“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”

But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?

“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.

The Challenges

These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.

On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.

Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”

He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”

As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”

 

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