"The Interdependencies of Events and Their Effect on Supply Chains" - Douglas N. Hales, CTL, PhD, Associate Professor of Operations & Supply Chain Management College of Business Administration, The University of Rhode Island

1. Douglas N. Hales, PhD, CTL
The University of Rhode Island
University Transportation Center College of Business Administration
Deborah Rosen, Director Mark Higgins, Dean

2. C t f E t (H i )
Costs of Events (Hurricane)
An “Event” is an activity that negatively interrupts the expected
“ ” h l h d
flow of goods, people, and services
Communication, Infrastructure, Authority, Technology
URI Transportation Center
3,946 transportation‐impact events in RI in 2009
Damage/Recovery Costs for Participants
$20,000/event
$20 000/event
Damage/Recovery Costs for Responders/Infrastructure
$10,000 non‐chargeable
Delay Costs (rarely considered ‐ 4.4 times that of Recovery
Delay Costs (rarely considered 4 4 times that of Recovery
Costs)
$516,000,000
Per Incident
$130,765

3. Delay Costs
Permanent & Temporary
Permanent & Temporary
Business
Lost Sales
Legal Issues/Fees & Regulatory Approval (9th Ward)
h
Return of Workers & Managers
Port Interruptions
Rail and Road Equipment
R il d R d E i t
Bridges & Hard Infrastructure
Airport closures – Passenger & Freight
Interruption to passenger air traffic in Europe due to the Volcano is $100
Million/day
Communication
Rerouted Cargo
Closed Plants & DCs
Restart & Replacement businesses (Ex: Oil Refinery)
Lost Property & Income Taxes (9th ward)
Non‐charged losses
N h d l

4. “Failure Mode Effects Analysis”
“Failure Mode Effects Analysis”
Measuring an Event
Occurrence (Probability of event)
Appx. 11/day
Detection (Ability to detect event a priori)
Virtually 0%
Severity (I
S i (Impact/Damage/Delay Costs)
/D /D l C )
High Frequency‐Low Impact Events
$130,765 + $20,000 + $10,000 = $160, 765
$130 765 + $20 000 + $10 000 $160 765
Total Annual Event Costs – Rhode Island
$634,379,000
$634 379 000

5. Delay Costs Drivers
I
Impact Severity – L
S i f h F
Lessons for the Future
Severity is increased because US businesses have had to eliminate virtually all
p p y y pp y p g y
protective capacity & inventory in their supply chains to compete globally
P&G – Folgers Coffee
Promoted by several popular management programs
Lean Operations – Just‐In‐Time (4 – 6 hours)
Six Sigma
Tax Policies
Concern over Securing Goods
If oil spill closes the Port of N.O. (Southwest) & Mississippi
$1 Billion/month to BP
Billi / h BP
$1 – $2 Billion/day in delay costs of inventory
Traditional authority is maintained top‐down
P&G
Misunderstanding of Probability (STS‐51 Challenger, 26 perfect games ‐ +2)
Ignoring the Obvious (Apollo 1, Challenger, Columbia)
Misapplied Cost‐focused Strategies – delay for assignment (flexibility)
Legal Barriers acceptance of liability 9th Ward
Legal Barriers – acceptance of liability –
Increased environmental regulation and enforcement

6. Hurricanes (Severity Damage)
Hurricanes (Severity‐Damage)
Perfect storm in the gulf – hurricane to help spread the oil
If the leak stopped today, $1.3 Billion in direct costs
Great Miami 1926 (Roger Pielke)
$760 Million Damage
6 Milli D
2010: $130 Billion Damage,
$580 Billion in Delay Costs
2020: $500 Billion, no/inflation (2006)
$2.2 Trillion in Delay Costs
Katrina
Damage/Recovery Costs
$ 80 Billion Damage
$360 Billion ($80 Bil. x 4.4) Delay
illi ( il ) l
Total Costs: $440 Billion

8. F M E A – NY/NE Hurricane ‘38
F.M.E.A. – NY/NE Hurricane 38
Occurrence (Probability of event in NE)
Appx. 3 per year in North Atlantic; One makes landfall each decade
Appx 3 per year in North Atlantic; One makes landfall each decade
Since 1900 ‐ 47 storms had severe effects in the NE
Since 1900, 12 hurricanes made landfall
4 were Category 4 intensity,
3 were Category 3, 1938 ‐ Cat 3, but direct hit
Detection (Ability to detect event a priori)
In 1938, virtually O% by NWS – Charlie Pierce
Spotted by vessel at sea 8 days before landfall
1933 – Unusual Weather ‐20 Hurricanes/Severe Storms
In 2010, 100% ‐
In 2010 100% 90% detected within region in 72 hours
Saves Lives, but not Damage or Delay Costs
Severity (Impact/Cost of damage)
1938 ‐ $100 Million in R.I., $300 Million overall in Damage Costs
In NY, Created Shinnecock Inlet, widened Moriches Inlet
In RI –Watch Hill ‐ Misquamicut, Nappatree Point (Sandy Point)
2010 ‐ $17.1 Billion Damage in R.I. – Delay Costs = $75 Billion
“High Impact, Low Frequency Events”
The next “Long Island Express” will be the greatest natural disaster in US history (Dave
Vallee) and probability says that it will occur again

9. Affected Goods & Services
36,000 businesses in Rhode Island; 26,000 are within 2
miles of the water
Quonset Point‐Davisville P
Q P i D i ill Port
5th largest RoRo port in US for autos
168 Businesses ‐
168 Businesses $10 Million/day
Electric Boat, Wind Energy, Toyota
$One Billion in inventories held at Quonset Point
Q
8,800 employees

10. R C t i t
Resource Constraints
TEMPORARY CHANGES
72 hours w/o water, food, shelter, communication, and
h / f d h l i i d
security – Ex. P&G
3 week outages and severe shortages
Water
Power
Transportation
Fuel and Natural Gas
90 days
Temporary Housing
p y g
PERMANENT CHANGES
Watch Hill ‐ Napatree Point – Sandy Point
Generational Effects memories
Generational Effects – memories – repeat mistakes

11. I 95 Corridor (30% 35% in NY & NE)
I‐95 Corridor (30%‐35% in NY & NE)
9.0 Billion Vehicle Miles Traveled in R.I.
8700 miles/capita
8 il / it
50% fuel purchased in R.I.
Avg. 500 Million gallons of fuel per year
$4.7 Trillion in Economy/11.75 Tr. (40% of total GDP)
$4 7 Trillion in Economy/11 75 Tr (40% of total GDP)
$1.6 Trillion in NY and Northward (path of 1938)
$197 Billion exported Goods and Services ($70 Bil. in NE)
28% of all US Exports (10% in NE)
$172 billion imports through Eastern seaports ($60 Bil. In NE)
34% of the US total (12% in NE)
38% Of All U.S. Jobs (13% in NE)
35% of nation s vehicle miles traveled (VMT) (12% in NE)
35% of nation’s vehicle miles traveled (VMT) (12% in NE)
5.3 Billion Tons of Freight Shipments Annually ‐ Appx. 2 Billion to NE
Corridor occupies 10% of the Nation’s Land Area but 37% of its
p p
population‐ Over three times more densely populated than the U.S.
yp p
average and as densely settled as much of Western Europe

12. Sources
Roger Pielke
University of Colorado
Dave Vallee
NOAA/NWS
Joseph Bucci
J h B i
Rhode Island DOT

13. Population & Traffic Density
opu at o & a c e s ty
New York City
2050
J y
New Jersey
1134
Rhode Island
1003
3
Massachusetts
809
Connecticut
702
Traffic
Trucking
10,000/day; peak 31,000/day; double by 2035
40% in NY Northward
Total Truck & Auto
72,000/day; peak 300,000/day
72 000/day; peak 300 000/day
40% in NY Northward