The impact of Hurricane Harvey on the global supply chain will be worse than expected due to the dependence on chemicals and intermediate products across a range of industries, according to supply chain experts at Resilinc, a provider of supply chain risk and resiliency solutions. Other contributing factors are an interconnected global supply chain and a lack of sub-tier supplier visibility.
Resilinc reports that 33 percent of U.S. chemical production has been disrupted as a result of Hurricane Harvey. Resilinc’s data repository, which tracks millions of parts and raw materials through multiple supply-chain tiers, shows that 68 key chemicals and intermediates originate from the Texas region. Many of these chemicals are used in the high-tech electronics and semiconductor industry.
High-tech industry products or parts that use these chemicals are epoxy resins that are used in products such as metal coatings, LED/electronics components, and electrical insulators, said Bindiya Vakil, CEO and founder of Resilinc. “Also, many of these chemicals are used for making semiconductor device manufacturing processes, paints, coatings, solvents, adhesives, sealants, rubber, electroplating devices, plastic casings, foam, printing materials, enamels, packaging materials, and ESD coatings,” she added.
Nearly 800 factories, warehouses, and distribution centers have been affected by Hurricane Harvey with 300 in the Houston vicinity, according to Resilinc’s data. There are about 55 Tier 1 supply sites in the Houston and Corpus Christi areas that serve the high-tech industry, and 121 sites in the second-tier supply chain tied to the high-tech industry. So far, eight high-tech suppliers have confirmed impact, said Resilinc.
The types of sites in the mapped area include distribution, manufacturing, returns & repairs, final assembly & test, fabrication, and warehouses. The 800 sites affected are not corporate or sales offices; they provide raw materials, parts and services, said Vakil during a webinar.
Disruptions in the area range from wind, flood and road damage to power outages, a lack of water purification and interruptions of air transportation and sea ports.
“Even if a supplier’s factory is not flooded, the infrastructure - power, water, transportation, etc. – may not be available for weeks,” said Vakil. “It will take time before cargo starts to move.”
If a road is flooded to a supply point or site, the recovery time could be a couple of weeks but if a factory is flooded it could be much longer, said Vakil. “To replace a piece of equipment it can be as long as three to six months. There is a lot of risk in terms of recovery time if a factory gets flooded.”
In addition, the disruptions will ripple through the supply chain at factories and facilities not in the impacted area, she added.
Vakil cites several reasons for a potentially high impact on the supply chain. In addition to widespread flooding in the Houston and low-lying areas, Texas is responsible for almost $600 billion in economic activity, she said.
The port of Houston ranks at number one in the U.S. in international waterborne tonnage handled and second in total cargo tonnage, according to Resilinc. Imports into the Houston port include China ($3.6 billion), Mexico ($3.2 billion), Germany ($2.6 billion), Brazil ($1.5 billion) and the Netherlands ($0.6 billion).
Currently, suppliers affected by the hurricane confirm a one- to four-week impact. However, Resilinc expects a much longer recovery time.
“We are concerned that suppliers may not have invested in the necessary capabilities such as multi-tier supply chain visibility/mapping, proactive risk mitigation, and 24x7 monitoring and disruption response planning. Our assessment is that suppliers’ risk management capabilities are not mature enough, and therefore, we suggest companies verify extensively when suppliers state that impact is expected to be one to four weeks long.”
Average recovery times for worst-case scenarios are 10 to 20 weeks, up to a maximum of 52 weeks for full production volumes, according to data collected from suppliers in the region by Resilinc over the last few years.
“If the roads leading up to the factory are damaged, that is a two- to four-week disruption, but if the factory is flooded, then equipment procurement or repair time, setup and qualification time, production lead time and transit times, all become a critical path to recovery,” said Vakil.
“We proactively asked suppliers to estimate how much time it would take them to recover in case of a worst-case scenario such as Hurricane Harvey related flooding, where they might have to repair/replace and re-qualify equipment and facilities,” said Vakil. “The average recovery time estimates provided by the supplier provides a picture of what they truly expect and that is what we based our guidance on.”
“The closer you are to the suppliers in the region, the sooner the disruption will hit your supply chain. If these suppliers are in your sub-tier supply chain, and if you have not mapped your supply chain dependencies, the capacity and material constraints will be realized in the weeks to come,” she added.
Resilinc also noted that while alternate locations are available for many of the logistics sites, they aren’t always available for manufacturing facilities.
How to Manage a Disruption
Planning is key to a streamlined recovery, said Joe Carson, chief strategy officer at Resilinc.
“We recommend you not take a wait and see approach, but activate your Disruption Event Response teams,” he said. “Get your internal stakeholders and partners together, work closely with suppliers, verify supplier impact assessments and prepare for a months’ long recovery effort that spans multiple supply chain tiers.”
“One of the things we’ve found is that you’ll have a variety of roles represented, certainly within the supply chain organization, but when it comes to an event you need the leadership that this team provides,” he said.
During the webinar, Carson shared five steps to take in the event of a supply chain disruption. His recommendations are to:
- Establish a disruption management team.
- Define roles and responsibilities.
- Create a playbook for assessment and response coordination.
- Put in place internal and external communications protocols.
- Establish an engagement model with broader stakeholders.
There are three key areas of preparation – assessing the situation, coordinating with other people (logistics, procurement, supply chain) and establishing what their roles should be and where you need their help, and most importantly, execution, said Carson. “Without that we wouldn’t have the actions we need to take.”
These actions could include shifting supply out of a region to alternate suppliers and/or sites, finding alternate transportation routes into and out of the impacted area; assessing inventories available at sites (outside the region) and distribution, and contacting freight forwarders about potential impacts and recovery plans.
Many times second sources even in they are in a safe location could still be a problem because their supply chains may not be geared up to meet the onslaught of orders they may receive, said Carson.
“Second sources may also be overwhelmed with business and shifting customer priorities. First-movers, who know all their supply options and obstacles, and who can work with speed and precision will get parts that their competitors and those in other industries will miss out on,” Carson stated.
“I would also remember that suppliers who are not located in the affected area could be relying on materials that come from this region – knowingly or unknowingly due to the supplier being many tiers downstream - and therefore could get disrupted in the coming days or weeks,” he added.
Speed and communication will be key elements to your response, advised Carson.