Fair or foul
From the April 2019 print edition
Whether it’s flash flooding, hotter- or colder-than-usual temperatures, hurricanes and tornadoes or something else, the signs of extreme weather are everywhere. Alberta, BC and northern Ontario have all seen wildfires rage recently. At the same time, Alberta, Quebec, New Brunswick and Ontario have dealt with severe flooding this spring. While these types of events can affect our daily lives, displacing people from their homes and damaging property, they can also disrupt supply chains.
Among those who realizes this is Jim Wells, procurement manager at East Coast Tubulars Ltd., based in Newfoundland and Labrador. The company deals with high-end specs for oil country tubular goods (OCTG), a group of product consisting of drill pipe, casing and tubing. Typically, Wells says, that involves high-end steel grade pipe and premium connections.
The bulk of the product that the company orders comes from abroad, including from Germany, France, Japan and others countires, Wells notes, adding that the international nature of the products means a heavy reliance on the whim of the weather. “We’re at the mercy of ocean-going vessels,” he notes.
The company has seen a 30-to-40 per cent uptick in late deliveries recently, Wells says, citing typhoons, high seas and tsunami as playing a role in those delays. There has also been a 30 per cent increase in shipping damage. Even the most secure loads won’t withstand more severe conditions, Wells says. Often, tubular shows up that needs the connectors replaced, the ends re-cut and, in most cases, materials have broken free from cargo holds as well as from the strapping that was holding it in place. If steel comes into contact with other steel, it needs to be retested before it’s used.
Last year, for example, a vessel left Japan carrying some product ultimately bound for East Coast Tubulars, Wells notes. But about four or five days into the trip the vessel hit a typhoon and the captain decided to ride out the foul weather rather than risk injury. While Wells supports the decision to put safety first, it also meant that the cargo was a mess. “It was arguably some of the worst affected material we’ve ever seen,” he notes.
Previously, the solution might have been to simply buy more product, Wells says. But in the current market there’s increased activity, a shortage of supply, more lead times and more expenses. It’s simply not practical for the company to have more inventory on the ground. As well, being based in Newfoundland and Labrador means the company is too far away to do just-in-time operations.
While the company is located on an island, which adds complexity, the last five years has seen an increase in weather-related challenges, Wells says. In the last six months, each month has seen roughly four to seven days in which there have been no ferries from the mainland. Some product has sat in Nova Scotia for weeks before arriving on the island, Wells says.
“We’re constantly dealing with the weather,” he says. “I wouldn’t say we’ve gotten numb to it—we recognize where we are is a challenge, but in the last five years it’s gotten worse.”
To help deal with the situation, the company is always looking to other sources of product from suppliers with shorter vessel delivery windows. The organization has looked at its procurement cycle to figure out the worst periods in terms of weather (November to February earns that spot) as well as taking into account shipments from Japan and other locations. Scheduling RFPs by November 15 helps, as does avoiding major shipments during that four-month period. But oil is drilled constantly, so keeping to that planning schedule is challenging.
Technology can help, Wells says, and the company uses apps to track vessels globally. But there is no control over what happens to those vessels while they’re at sea and Wells notes the importance of monitoring weather conditions. GPS tracking aids in following land-based logistics, while being careful with supplier selection is also useful. The company uses an internal system to capture information in different categories, such as lead times. It’s then possible to search the database over several days to see what the challenges have been, which helps to ensure continuous learning. “We do use technology to keep track of these events and avoid situations if we can,” Wells says.
Bill DeMartino, GM at riskmethods, notes a definite increase in awareness among clients of the potential for extreme weather to affect their supply chains. Last year the company saw an uptick in weather-related events. To help with planning, DeMartino advises to look at areas where the supply chain is exposed to such risks. That can produce a “digital twin” of the supply chain that can include supplier sites, customer delivery sites, ports and hubs, warehouses and so on.
“You’re then able to pull in information that gives you a sense for the inherent vulnerability of those locations,” DeMartino says. “Maybe those flood plains are getting larger, or maybe they’re shifting. Or maybe the chances of a storm in this region are growing. That’s really the first step—making sure you’ve understood your risk exposure.”
Sometimes, when it comes to risk, the cause is less important than the impact on the supply chain and the subsequent reaction, says DeMartino. If a supplier is no longer able to produce goods due to weather events, what’s the contingency plan? It’s also important to know how long those goods will be unavailable. “If this is something that’s going to take them out for a day, they can recover,” he says. “If it’s something that’s going to be catastrophic, then it’s a different story. It’s much more about the impact than about the physical cause.”
Think in categories
This leads back to planning, DeMartino says. Regarding supply chains, it’s helpful to think about in terms of categories of goods rather than individual supply entities or ports and hubs. From there, look at the overall risk to that category. For example, DeMartino describes working with the director of supply chain for an organization that had one supplier providing upwards of 90 per cent of the goods the organization needed. So riskmethods and the director decided this was too much risk and another supplier was added. The organization went through the process of vetting the supplier, assessing their financial situation, their history and so on before bringing them onboard.
But to the director of supply chain’s surprise, riskmethods flagged some risk with that supplier. The risk came from the fact that the second supplier was located very close to the first one, and both were on a high-risk flood plain. From a business perspective, it may have been a good idea to bring on that supplier, but the decision had been made without considering the weather-related risks.
“I like to think of it as risk-aware decisions,” DeMartino says. “You’re making a decision about risk whether you considered it or not. The point is, get as much information as you can so that you make a decision that aligns with your risk appetite.”
And that awareness and preparation are key. Many organizations are quite prepared to react to threats to their supply chains and have teams ready to respond, DeMartino says. But they’re often not as prepared to prevent and mitigate risks. “They may need to enact those teams more often than they should if they were more prepared in terms of the actual design of the supply chain and the decisions that they’ve made,” he says.
Prioritize threats most likely to impact the business, DeMartino says. Supply chain professionals are under increasing pressure to digitize and operate faster. But it’s essential to ensure that risk management capabilities keep up with that pace of business. “That’s why I’ve got to know when that little flood happens in that area because I need to know if that shipment is going to be delayed,” he says. “I don’t have the ability to deal with these hiccups anymore.”
Climate change may be a reality that supply chain professionals must deal with and have little control over. Extreme weather events, while more and more common, will continue to affect how supply chains operate. But with awareness and planning, supply chain professionals can make great strides to mitigate those risks.