Alabama power response to Katrina: managing a severe service supply chain disruption.(Instructor's Note)

Skipper, Joseph B. ; Hanna, Joe B. ; Gibson, Brian J. 等

CASE DESCRIPTION

This case is designed to provide students with a business case based practical example of how an unexpected event can impact a business operation. This is a multi-part case designed to provide business students with a unique perspective on the many issues that a company must confront and address when an unexpected event disrupts the normal operations of a business. The case is designed to appeal primarily to a broad range of undergraduate students, and to a lesser degree graduate level business students. The case is challenging because it encompasses a wide range of issues, but the focus of the case is designed to entice meaningful and insightful discussion about how to effectively manage a business when confronted by a specific type of disruption. As a result, the case is not complex from the standpoint of developing a "correct" or "incorrect" answer.

CASE SYNOPSIS

Part A of the case is designed to provide students with a multi-faceted situation with the focus being on requiring students to identify, analyze, and prioritize the key issues, their relative importance, and how to address each issue to minimize the impact of the disruption on business continuity and performance levels. Part B complements Part A by providing the student with an in-depth discussion of how the company featured in the case identified, analyzed, and prioritized the key issues they faced during and immediately after hurricane Katrina.

INSTRUCTORS' NOTES

The best way to administer this case is to divide the case into Part A and Part B. Part A is distributed first, with students asked to respond to the questions provided at the conclusion of Part A. Then, once Part A is complete, Part B can be distributed and the students asked to respond to the questions for Part B.

Part B contains some of the "answers" to Part A and/or details how Alabama Power responded to the challenges associated with a severe service disruption. Below are suggested short answers and/or areas to begin class discussions of the case.

CASE DISCUSSION QUESTION (PART A)

1, What actions can an organization take to prepare for potential disruption? The point of this question is to drive discussion of the activities that organizations typically take in preparation for a disruption. This might first entail a discussion of different types of disruptions (causes) followed by actions taken to prepare for those specific events. As discussion continues, the point should be made that many of the seemingly independent actions brought up are probably very much related. Managing risk or planning for a contingency incorporates these independent actions under a single umbrella.

2. How do seemingly local, or regional, events impact the larger supply chain network (or even the entire economy) as a whole?

This question is designed to encourage the student to thinking about the 'so what' part of the equation. While everyone may be empathetic with the victims of a natural disaster or other business disruptions, it is often difficult to completely understand the impact on your own organization. This discussion should focus on what impact a Katrina type event will have on other organizations in the short, medium, and long range. Potential short term disruptions within the supply chain might include port closures, highway infrastructure damage, and loss of containerized freight or empty containers. Mid-term impacts might include loss of suppliers or other business partners. Finally, long term impacts might include the loss of organizational capabilities that are not easily replaced (manufacturing facilities', etc ...)

3. What are the key differences between those companies who can react quickly and effectively to a situation and those that can not?

Based on the discussion generated in question 1 and 2, what actions, policies, or processes differentiate companies that can and cannot react quickly? This discussion should include active participation in listing the actual activities that would logically make a difference. One discussion area might include asking whether the listed actions are appropriate for all organizations in every situation.

While there is not one "correct" answer, the following is an example of how a student might appropriately respond.

Alabama Power delivers a universal product, much like the oil and gas industry, and must be able to respond quickly to disasters. Frequently, Alabama Power must deal with minor disasters due to storms, damaging winds, etc., on an ongoing basis. Companies that do not have the masses as its customers may not see a cost benefit in having a disaster recovery plan in place. Hence, when a disaster does strike, the lack of training is evident by non-proficiency exhibited in the actions or tasks related to emergency preparedness. In other words, practice makes perfect and first responders, as well as other team members, take actions similar to those actions taken in drill scenarios.

Another aspect of a company having the ability to respond effectively to an emergency is the financial status of the company. During disasters, individuals and groups are more willing to give of themselves, whether it is via their time, know-how, or donations. Companies with large cash reserves may already have the needed resources on hand to deal with the emergency--or at the very least, the ability to rapidly acquire the necessary material needed for restoration purposes.

Management at Alabama Power attributed the quick power restoration to Southern Company being vertically integrated, i.e. the company performing the 3 functions of generation, transmission, and the distribution of electricity to its customers.

Management also indicated that the recovery plan had decision-makers who understood their responsibilities, but incorporated enough flexibility and decentralization to allow decisions to be made at the disaster areas. Another key was communication. With the help of Southern Link--a Southern Company--communication was maintained, thus allowing coordination between parties responding to specific disasters.

4. Given the enormous task ahead and the limited information available, provide thoughts on how to approach a recovery plan.

This should include a prioritized list of key accomplishments for restoring power, as well as a list of company needs required to accomplish the restoration.

List of key accomplishments:

Safety--top priority

Electricity availability--power substations and generating plants on-line and capable of supplying power to their customers.

Power restoration--short-term is to maximize use to restore power to structures that are not severely damaged.

Rebuilding--long-term is to have the damaged or destroyed areas rebuilt and the infrastructure [water, electricity, and gas] restored.

List of company needs:

Communication--Southern Link mobile phones; involves interfacing with local & federal authorities as well as other companies, in the assistance of restoration efforts.

Resources on hand--poles, lines, transformers; transport to affected areas.

Manpower--overtime hours required.

Staging areas--inventory that may be used in other affected areas.

One example of an answer might read something like the following:

Like most everything else in life, pre-planning up front helps alleviate problems down the road. However, regardless of forethought put into disaster prevention or disaster recover, one essential key element would be top on the list. The top priority is maintaining the safety of the public and the employees engaged in restoration efforts. Communication ranks second. Without adequate communication, resources and manpower will be used haphazardly, rather than optimally. A satellite-based communication system is superior to land-towers for acquiring an incoming signal. In most instances, communication towers will be damaged or destroyed in the storm.

Next on the list, is determining what equipment is salvageable. If equipment cannot be salvaged, then it must be replaced with new parts. This is the short-term outlook--i.e. restoring power to the existing structures that were not destroyed by Katrina. A long-term approach is the rebuilding of the areas affected by Katrina and re-establishing the infrastructure of these towns and cities.

Last on the list will be the allocation of resources and the staging of resources needed to bring power back on-line. This will be a major labor-intensive undertaking involving overtime to return the electricity to its customers in the minimal amount of time. Teamwork is of paramount importance as well. Items needed for restoration efforts include electric line poles, lines, and transformers.

As for management, they will need to be kept abreast of the developments as they occur, to help ensure a timely completion of activities. Additionally, they must be empathetic to the workers and families affected by the storm. Along those lines of cooperation, Alabama Power must also interact with other companies, local and federal agencies, knowing that the rebuilding is an all-hands evolution.

5. Discuss how Alabama Power's dedication to quality and their philosophy of continuous process improvement could be utilized upon completion of the response to Katrina to enhance future efforts.

The impact of Hurricane Katrina will have long-term impacts. Many businesses have taken a year to recover from losses while other businesses may never fully recover. Natural disasters of this type cause massive business disruptions, regardless of industry. In the case of Alabama Power, the company was able to successfully manage restoration efforts and restore power in minimal time given the extreme circumstances they faced. This is due, in large part, to the continuous dedication of the company to contingency planning efforts conducted through implementation of a continuous process improvement philosophy. By focusing their efforts on awareness, prevention, remediation, and knowledge management, Alabama Power was able to recover quickly and efficiently from the mass devastation created by Hurricane Katrina. In the aftermath of the company's response to the disaster, they can review what portions of the plan were executed smoothly and which parts of the plan need to be revised for better disaster preparedness and improved disaster response the next time Alabama Power faces a similar tragedy.

In short, Southern Company is a "learning" type of organization. Employees are encouraged and expected to conduct post-job briefs after evolutions, in order to incorporate lessons learned into future activities. This is a part of the company's continuous improvement process, which is designed for getting employees to strive for better methods and to seek ways to become more efficient. Many items are documented and stored in a database that can be used for lessons learned. Such examples would include safety concerns, near misses, injuries, suggestions for improvements, revisions to existing procedures to enhance the existing version, etc. Management frequently performs observations of subordinates to help ensure quality is maintained in the work ethic and culture. By employing a continuous improvement process, the firm will always learn from any situation requiring implementation of the plan. Those parts of the plan that were not as effective as originally anticipated can be re-examined and the process re-engineered for improved results in the future.

CASE DISCUSSION QUESTION RESPONSE: PART B

1. Given what Alabama Power has experienced (Part A), and how they responded (Part B) identify any additional issues and potential tools that management may be able to use to help them achieve continuous improvement in their contingency planning process.

In a recent company-based publication, Barry Inman writes an article titled "Katrina provides real-life experience, but what's next?". He goes on to quote one of the members on the Southern Company Security Council during a meeting in December 2005. Some of the excerpts that include the application of lessons learned to that of real-life experiences due to the Hurricane Katrina's aftermath, are as follows:

"Hurricane Katrina represented the first time in Southern Company's history that electric operations and business infrastructure were disrupted at the same time."

The council learned plenty of positives from Katrina. Among them were the teamwork across the core functions; all those functions being engaged in the thick of the response; every incident response team member being fully committed to the cause; and a healthy exchange of information forming the basis for important decisions that helped thousands, such as the purchase of trailer homes and the distribution of payroll cash advances for displaced employees in Mississippi.

"Katrina taught us that the weather can wreak just as much havoc on our business infrastructure as a terrorist attack."

"In 2006 we will focus more on building relationships with other critical infrastructure providers that rely heavily on electricity, such as gas pipelines, hospitals and telecommunications companies," he said. "We will also spend more time on employee communications and what employees need to do in times of emergencies."

Additionally, employees are encouraged to call the 1-866-600-NEWS number for the latest information, such as clarifying the roles and expectations of participating state and federal agencies, and making better use of communication tools such as SouthernLINC Wireless phones and satellite phones.

This part of the case is merely designed to provide the student with an opportunity to practice problem-solving on their own by identifying additional key issues and potential tools to use to enhance Alabama Power's continuous improvement process when applied to contingency planning efforts. The above bullet points serve to identify key areas that are of interest to the management team of Alabama Power.

REFERENCES

Alff, G. (2006). Have Hurricanes Changed Everything? Or Is A Soft Market Ahead? Risk Management, 53(1), 12.

Anonymous. (2005). Update on Economic Impacts of Katrina. Retrieved. from http://jec.senate.gov/_files/ EconomicEffectsofHurricaneKatrina.pdf.

DHS. (2006). Progress Made: A 6-Month Update on Hurricane Relief, Recovery and Rebuilding: Office of the Federal Coordinator for Gulf Coast Rebuilding. Retrieved from http://www.dhs.gov/interweb/assetlibrary/GulfCoast_Katrina6- monthFactSheet2-2806.pdf.

Christopher, M., & H. Lee, (2004). Mitigating Supply Chain Risk Through Improved Confidence. International Journal of Physical Distribution & Logistics Management, 34(5), 388.

Elkins, D., R.B. Handfield, J. Blackhurst, & C.W. Craighead, (2005). 18 Ways to Guard Against Disruption. Supply Chain Management Review, 9(1), 46.

Hale, T., & C.R. Moberg, (2005). Improving Supply Chain Disaster Preparedness: A Decision Process for Secure Site Location. International Journal of Physical Distribution & Logistics Management, 35(3), 195-207.

Zsidisin, G. A., S. Melnyk, & G. Ragatz, (2005). An Institutional Theory Perspective of Business Continuity Planning for Purchasing and Supply Management. International Journal of Production Research, 43(16), 3401-3420.

Joseph B. Skipper, Auburn University

Joe B. Hanna, Auburn University

Brian J. Gibson, Auburn University