CASE STUDY 2.2: FOR HOME DEPOT AND PROCTER & GAMBLE, ITS NOT A MATTER OF IF BUT WHEN: DISASTER RESPONSE PLANNING FOR BUSINESS CONTINUITY AND COMPETITIVE ADVANTAGE On Sunday, September 1, 2019, Hurricane Dorian struck the Bahamas as a Category 5 storm, which the National Hurricane Center described as extremely dangerous and catastrophic with devastating winds. At the time of the Centers announcement, Florida, North Carolina, South Carolina, and Georgia, the states predicted to be in Dorians path, had declared states of emergency to ensure proper preparations ahead of the storms landfall. While certainly worrying, it is not unusual for hurricanes to develop in the North Atlantic region. In fact, the period from June 1 to November 30 is known as the Atlantic hurricane season, and it has created some of the costliest hurricanes, including Katrina (2005), Harvey (2017), and Maria (2017), with a total estimated damage above $300 billion in 2017.

While residents prepare for storms by stocking up on supplies, taking steps to protect their homes, and possibly evacuating their homes, similar preparations are made by companies and businesses who expect to feel the effects of the storm locally or on a national scale. In part due to past observations or experiences, companies are increasingly recognizing that natural disasters may cause major supply chain disruptions. Therefore, they pay special interest to the management of their supply chains during these events, which they deem essential for business continuity.

It is by no means an easy task to effectively manage a supply chain during a disaster. Jonathan Flores, a supply chain human resources manager at Home Depot, states, People dont really understand the magnitude of the supply chain response when a hurricane is happening. At Home Depot, preparedness and proper planning are key for quick supply chain response. For example, several days before Hurricane Harveys arrival in Texas, Home Depot activated its disaster response plan, which meant the companys merchandising, operations, and supply chain teams worked with suppliers and transportation partners to get supplies to stores in the storms potential path. As the hurricane made landfall, the company set up a hurricane command center, froze prices, and moved storm-related merchandise to the front of stores. Within a few days, Home Depots trucks were operational, delivering hurricane emergency supplies from a dedicated and prestocked warehouse.

Regarding Home Depots performance, Burt Flickinger, managing director of retail consultancy Strategic Resource Group, said, They are a clear leader with disaster response and their strategic planning during such times is better than any retailer globally. Home Depots strategic planning of disaster response helps the company to be prepared and ready to respond before and after a storm strikes to support our communities and our associates, says Hector Padilla, president of Home Depots southern division. It also puts the company in an advantageous position to react to a surge in demand for its products once the recovery process starts.

Although unfortunate, disasters represent opportunities for companies to assess and redesign their risk management plans. In the past, Procter & Gamble (P&G) followed a decentralized approach to disaster response, with its 300 facilities around the world making their decisions independently in the event of a disaster. Without a central authority to make system-wide decisions, the companys ability to respond quickly to supply chain disruptions was jeopardized. P&G later centralized its disaster response structure by implementing a decision-making clearinghouse and a planning service center. This strategy was tested and proved successful when Hurricane Sandy struck in 2012. The hurricane took down P&Gs Avenel, New Jersey, plant, which made 91% of P&Gs perfumes at the time, but the facility recovered after only a small interruption in operations. Several years later, the company took additional steps with the goal of making its disaster response planning more proactive than reactive. P&G now uses cloud-based software to test scenarios to better prepare for natural disasters and rapidly recover from supply chain disruptions. For example, days ahead of Hurricane Harvey in 2017, the planners utilized the software to shut down one of P&Gs Tide detergent plants in Louisiana and transfer the resources and people to the Ohio plant. Bob Herzog, Associate Director of Planning, P&G, explains: Not only were there no impacts from the hurricane on our supply chain, but we were prepositioned so that as soon as our customers were ready to receive products, we were ready to provide them. As a result, weve been able to supply consistently when our competitors havent.

Home Depot and P&G formulated risk management strategies that have proven effective in riding out severe storms. However, development of a risk management strategy for dealing with the impact of natural disasters does not seem to be a universally adopted approach. For example, in a survey by FM Global, a commercial and industrial property insurer, two thirds of the respondents, who are senior financial executives at Fortune 1000 organizations, said the hurricane season had adverse effects on their business, and among those impacted, more than 60% were not completely prepared to deal with the effects.31

Questions What are the difficulties businesses face when developing risk management strategies specifically for natural disasters? Which parts of a companys supply chain can experience disruptions during a natural disaster like a major hurricane? Manufacturers have fixed sites and assets. What type of preplanning activities can they do to manage supply chain disruption risk during a hurricane? In what ways can a centralized disaster response structure like the one implemented by P&G be superior to a decentralized structure? Which industries are more likely to have opportunities to profit from the impact of hurricanes?