For weeks after Hurricane Katrina devastated the Gulf Coast in late August, pundits blasted the poor response of federal, state and local authorities, some of whom seemed unprepared to deal with a disaster of this scope.
Fortunately, Associated Grocers, Baton Rouge, La., was much better prepared. The cooperative wholesaler, whose Baton Rouge distribution center serves 210 retail members operating about 300 stores, was able to radically adjust its normal supply chain practices to meet the sudden, overwhelming needs of storm victims.
"We deal directly with our [retail] customers and try to fight through that," said Lewis R. "Randy" Fletcher, vice president, logistics and supply chain management, Associated Grocers. "Our trucks were often the first thing people saw when they came out of shelters or their homes."
Associated and other proactive retailers like Wal-Mart (see story, Page 50) were indeed "first responders," preceding the Red Cross and other organizations in dealing with the emergency. "Our trucks rolled into areas, often with police escorts," Fletcher said. "We had local sheriffs meet us at the county lines and escort us in so we'd have no problems with downed power lines or other obstacles."
Like many food distributors, Associated also helped out with donations, providing food to police units in Mississippi and Louisiana, a temporary office set up in Baton Rouge by the state Office of Emergency Preparedness, food banks and the Red Cross.
Between 60% and 70% of Associated's member stores, located across the Gulf Coast in East Texas, Louisiana, Mississippi, Alabama and southern Arkansas, were directly impacted by Katrina and by Rita a month later, suffering power outages or storm damage. Even stores several hundred miles from the coast were affected. As of last week, 25 locations were still not operational, about 15 of these in the New Orleans area, down from a peak of 50. Areas of southwestern Louisiana, buffeted by Rita, still lacked power as of last week.
To deal with such widespread difficulties, Associated invoked its standard hurricane preparation and response strategy but took it to a higher level, in effect reinventing its supply chain on the fly. How Associated pulled it off is a lesson in disaster responsiveness and supply chain resiliency.
IT STARTS IN MAY
Associated's preparation for hurricanes in the Gulf Coast region, honed over years of experience, begins every May, about a month before the start of the hurricane season. That's when the wholesaler stocks up on $750,000 in reserve inventory of 150 basic survival items, such as water, batteries, canned goods, tape and first aid, enough to last till the season's end in late October. "That puts us in a position to respond to the approach of hurricanes, when a great deal of purchasing is done at retail as people buy their 'storm kits,"' Fletcher said.
Associated encourages its retailers to pre-book orders from "hurricane inventory" so shipments can be expedited when they are needed.
Associated also has "tentative orders" for key commodities such as water, dry ice and bagged ice. "We have as many as 50 truckloads of water on standby, which can go directly to stores rather than to our DC," Fletcher said. "We can pull the trigger on those items right before or right after a hurricane." The wholesaler taps multiple suppliers for a critical item like water, in case any particular supplier is "put out of commission," he noted. Dry ice is shipped to stores in sensitive areas so that coolers and refrigerated cases can be used for several days without power.
In the days leading up to Katrina, Associated encouraged member stores to "bring in key items early on" to meet the rush, Fletcher said. "We make deliveries to stores until we're not capable because of safety or accessibility." Anticipating the post-storm recovery needs, Associated also had orders selected and ready to go in its DC and trailers.
In the immediate aftermath of Katrina, the most critical problem facing Associated was communicating with its stores. Many landline phones didn't work, while numerous cell phone towers were down, often leaving e-mail or on-site inspections as the only options. "From day one, we had a lot of retail counselors drive into areas to assess conditions," Fletcher said.
Technology played a helpful role in some cases. For example, some retailers used Associated's Web-based store-communication system, AG-Link, to view information and place orders. Associated is currently testing satellite telephone technology, through which the wholesaler will be able to communicate with stores when other phone systems are down.
Needs changed daily after Katrina. For stores in the hardest-hit areas along the coast of Mississippi and in the New Orleans area, Associated brought in grocery products, water and ice, as well as refrigerated trailers. Other basics included juice, drinks, bread and cold cuts.
Some stores used emergency generators to keep the front-end point-of-sale registers and lights on, enabling them to sell dry groceries if not perishables until full power was restored. Fletcher praised the resiliency and determination of many independents that sprung back into business the day after the storm passed. "They were much quicker than many chains and mass merchants," he said. "Their customers are their neighbors and friends. For them, it's more than a job; it's a way of life."
One Associated retailer, Barry Breaux, owner of four-unit Breaux Mart Supermarkets, Metarie, La., recently told SN that his post-Katrina recovery "was a little cumbersome, but I have good people working for me and Associated Grocers was there."
Associated closed its DC on Monday, Aug. 29, the day Katrina hit Louisiana. The wholesaler began shipping the following day, but the demand for deliveries was so great that it took a week to get caught up and not have to carry over volume to the next day. "On a normal day, we ship 90 to 100 truckloads, but we had about 130 after Katrina, so we'd carry over about 25 to 30 loads," Fletcher explained. "We were a half-day behind the first week." Overall, shipments spiked 50% during the first two weeks of recovery, jumping to 775 per week from 550. DC employees and drivers earned considerable overtime, he acknowledged.
However, with the industrywide shortage of drivers, "One of the biggest challenges was having enough drivers to provide the deliveries," Fletcher said. Associated relied on those available to "run as long and as hard as they could." The wholesaler did benefit from the relaxation of hours-of-service rules in the first few weeks following the storm.
Another tactic was to delay shipments to stores not directly impacted by the storm by a day. "We would communicate that to those stores so they could adjust their receiving," Fletcher said. "They were understanding."
DELIVERY CHALLENGES
Another major challenge facing Associated and other distributors was getting products delivered to the DC from suppliers. That had already been difficult because of rising fuel prices and persistent driver shortages.
After the Federal Emergency Management Agency became involved, the agency began "commandeering" drivers and deliveries from common carriers, leaving still fewer drivers to deliver goods to Associated's DC. In addition, the closure of many suppliers in the stricken areas meant that common carriers were less assured of backhaul deliveries on their return trips.
"We had four truckloads of water from Houston that was detoured by FEMA," Fletcher said. "They could have taken deliveries headed [away from Louisiana], but they took ours." This left vendors as frustrated as Associated was, he said, noting that "a lot of vendors gave us priority and tried to step up. Some were successful; some were not."
Fletcher added that vendors delivering truckloads of product dedicated to Associated -- representing the majority of shipments -- were more successful than those delivering less-than-truckload (LTL) quantities that were consolidated with other shipments. "LTL carriers still have huge backlogs that have yet to be distributed," he said. "They can't tell us when it will get here, because they're overwhelmed."
How did Associated deal with these delivery obstacles? One way was to maintain a highly flexible, 24/7 receiving schedule for two to three weeks after Katrina. "If we got a call from a carrier at 10 a.m. who said he was within an hour of our DC, he may have had a midnight appointment, but we said come on in," Fletcher noted.
For some direct-store-delivery items, such as bagged ice and bread, Associated took over shipments to stores through its DC. "We could deliver to stores the vendors couldn't get to," Fletcher said.
Fletcher acknowledged that erratic deliveries impacted Associated's service level to retail customers. Normally 98%, it slipped to 93% or 94% following Katrina. "We were just about back to normal when Rita hit," affecting east Texas and southwest Louisiana, he said. "Then it was the same thing over again, like the movie 'Groundhog Day."' As of last week, another storm, Wilma, was a potential threat to the Gulf.
SALES SURGE
The irony of Katrina for Associated was that although some stores were shut down or reduced their operations, the wholesaler experienced the "four largest sales weeks in succession in the history of our company," Fletcher said. "We're still tracking 27% above last year." The reason is that customers for the most part were simply displaced from afflicted areas to other areas within Associated's marketplace.
Many displaced shoppers were supported by funding given out by government agencies, resulting in "more food dollars in the marketplace," Fletcher said. (See SN, Sept. 12, 2005, Page 64.) Moreover, there was more eating at home for families suddenly accommodating numerous friends and relatives. As a result, deliveries to stores in unaffected areas shot up from three per week to five per week or more.
Driver shortage continues to be a problem, Fletcher said. It could be worse during the holidays.
"Our biggest concern is people," he said. "We hope we have enough people in the labor pool in the DC and at retail to handle the volume. We don't want to burn people out."
Wal-Mart's Nerve Center
How is Wal-Mart Stores able to react so expeditiously in helping its stores prepare for and recover from hurricanes like Katrina?
The secret could be the company's Emergency Operations Center, located at its Bentonville, Ark., headquarters. It operates 24/7 all year to monitor and respond to issues that "could cause a disruption to business continuity," said Sharon Weber, a Wal-Mart spokeswoman. "It could be a fire at one store, a 'boil water' issue which could affect several stores or a hurricane which could affect hundreds of stores."
About 10 Wal-Mart associates handle day-to-day "Level One activation" issues, Weber said. A problem that entails more stores and requires attention from more areas prompts a Level 2 activation. When a hurricane is on the radar, the center will go to "full Level 3 activation," she said. "At that point, the center pulls in decision makers from all areas of support, including logistics, operations, facility maintenance, replenishment, merchandising and more."
The center begins watching storms when they are still depressions in the ocean. "We raise the level of activation as the depression grows into a tropical storm and then a hurricane," Weber said. Wal-Mart uses predictive technology to determine the needs of customers and stores, as well as the clubs and distribution centers. Seven warehouses maintain "disaster"-related merchandise on a regular basis.
Initially, 126 Wal-Mart facilities, including 12 in the New Orleans area and two distribution centers, were shuttered by Katrina. More than half lost power, some were flooded and 89 reported damage. By mid-October, all but 11 stores were reopened and most of those were expected to reopen soon. -- MICHAEL GARRY
