The flooding this spring in Memphis caused damage that Ball State University economists pegged at US$753 million, including $172 million in damage to commercial structures and equipment. But even as businesses in that area recover, the experience was billed by some as a “success” in terms of the ability of the U.S. Army Corps of Engineers levees to hold their ground.
The same might not be said of the Corps and other federal government organizations in response to the Nashville floods of May 1-2, 2010, when more than 13 inches of rain fell in 36 hours. Some $300 million in losses was suffered by businesses interviewed by the Nashville Area Chamber, part of $2 billion in damages in Nashville and Davidson County. But the local response was a resounding success in many respects.
“The giving, tenacity, and care for one another to get the city back makes you so proud,” says Glenda Betts, senior project manager for TVA Economic Development.
Such devotion was key to the recovery and rebuilding decision for A.O. Smith, whose water heater manufacturing plant in Ashland City was flooded out completely. The 1.5-million-sq.-ft. (139,350-sq.-m.) complex, which includes the water heater division’s headquarters, employs approximately 1,000 people, with another 200 working at a nearby customer care facility not affected by the floodwaters.
“The rain kept coming, and there were some issues with the Corps of Engineers in terms of how they managed some of the releases of water,” says Mark Petrarca, senior vice president of human resources and public affairs for A.O. Smith, from the company’s headquarters in Milwaukee. The end result was six to eight feet of water in the largest water heater manufacturing plant in the world.
“We didn’t get any notice, and we did what we could to get some power shut off,” says Petrarca of what transpired May 3, 2010. “We were pretty much at the mercy of Mother Nature. Once it stopped, and we determined it was safe to go into the facility, we did send in some senior folks in boats to see what was going on, and the extent of the damage. Immediately we set a couple of guiding principles: Take care of the customer and take care of the employees and their families.”
Those were employee boats, he explains. And they were able to get out on the water because of swift decision-making by Nashville Mayor Karl Dean.
“The mayor made two critical decisions,” explains Ralph Schulz, president and CEO of the Nashville Area Chamber of Commerce. “One was deciding not to inflict a curfew on the community, because his belief was people would behave responsibly, and their ability to help their neighbors and friends was important. The second thing he did may sound small, but in a disaster it can be big — at one point there was discussion as to whether only official agencies would be able to put boats in the water and save people. He decided no. He trusted the citizenry, and that would help the evacuation effort. That kind of defines the character of Nashville.”
Action and Reaction
As the rain stopped, A.O. Smith was mobilizing teams to fulfill orders, help employees and plan recovery all at once. Petrarca says it was an amazing feat, and the company didn’t lose a customer. One reason was those customers’ understanding of the situation. Another was the proactivity of A.O. Smith in telling some customers they might want to get their needs temporarily filled by the company’s competitors.
As for its employees, during the first week of shutdown, all were kept on the payroll, and the company set up a fund seeded with $100,000 for employees impacted personally by the flood (about 30 people). “They had the ability to get some money from the A.O. Smith Foundation,” explains Petrarca. “If their cars or homes flooded out and needed repairs, there was a process they could go through.”
Once the water receded, he says, a group of specialists came in to decontaminate the facility of bacteria before employees came in for the cleanup effort. Then, once they got the green light, they were at work with rubber gloves, squeegees and rags, with no power and no plumbing.
“Our people absolutely stepped up. It was very humid and warm, and they were in there making every effort they could,” says Petrarca, paying equal tribute to the ramped-up activity at sister plants across Tennessee and all of North America. Meanwhile, the plant’s electronics were “fried,” and plant maintenance personnel had to prioritize which equipment needed to be up and running again the soonest. Critical pieces were rewired, boards sent off to be repaired or replaced, and the plant started bringing back pieces of equipment one at a time.
“We were building water heaters 30 days after the flood,” says Petrarca, “not anywhere close to capacity, and the man-hours per unit were nowhere close to what they were. We were building some manually that were usually robotic. It truly was a success story of how people can come together to overcome an enormous adversity.” Overall, he says, “I think this was kind of a good situation that showed the employees how committed we were to them, and showed us how committed they were to us.”
As company financials reported, “During the second quarter of 2010, the company recorded flood related expense of $34.2 million, net of insurance proceeds.” Those expenses broke down like this:
- $36.2 million – Repair or write-off of buildings and equipment
- $15.7 million – Net inventory loss
- $14.3 million – Site cleanup and restoration
- $32.0 million – Less insurance proceeds from property damage, business interruption and federal flood insurance ($2 million)
- $34.2 million – TOTAL FLOOD-RELATED EXPENSE
The stage was set for a rebuilding decision. Internally, the final decision to stay was made by the executive team and board of directors, based on input from many people, including the president and vice president of the Water Products company within A.O. Smith, as well as vice presidents of human resources and finance.
Sometimes siblings can be rivals: The analysis included close looks at all of those sister facilities that helped out in a pinch. A facility in Mcbee, S.C., builds primarily commercial water heaters. Ashland City’s primarily residential water heater production is joined by other residential water heater facilities in Johnson City, Tenn.; Juarez, Mexico; and Fergus, Ont., Canada. All of them kicked in to support Ashland City during its crisis, says Petrarca, as did vertically integrated facilities in Franklin, Tenn. (just south of Nashville) and Cookeville, Tenn., located halfway between Nashville and Knoxville along I-40.
“When we looked at our alternatives, we did look at all of our existing facilities, to see if we should ramp up in these areas,” says Petrarca. ” ‘Do we want to stay in Ashland City, or are there other parts of the U.S. that make sense for us?’ “
Ultimately, the decision to stay was made on July 14, 2010, and the company is investing $50 million in Ashland City.
“There were several key factors to staying in Ashland City,” says Petrarca. “First and foremost, we had a large investment in the facility. But more important was the employees. They demonstrated what they were capable of doing in getting that plant up and running in 30 days. You can’t underestimate the value of a solid team in place. The third reason was support from the local officials. They were very aware that we were the largest employer in the county. Besides generating revenue for the county, a lot of businesses benefit from our 1,000 employees being there. They worked with us to figure out how they could keep us here.”
A total package of $7 million was reported to include $4 million from the state; $250,000 from TVA; $500,000 from Ashland City and up to $3 million from Cheatham County.
And the newly refurbished plant includes some new considerations in the wake of the 100-year flood.
“We can’t do everything, but we did try, where we had discretion and control, to put electronics higher than we had in the past,” says Petrarca. “Where we used to have our telephone relays four feet off the ground, we’re now putting them eight feet off the ground.
Post-Crisis Critique
Neither Petrarca nor area leaders hold back in their analysis of assistance and simple communications from the Corps of Engineers and others.
“In our estimation we think the Corps made some mistakes,” says Petrarca. “We think Mother Nature was part of the problem, but mishandling was another. We hope they learn from this mistake and follow their procedures going forward.”
“Initially we found there is very little federal assistance of any kind,” says Ralph Schulz of the Chamber. “SBA [the U.S. Small Business Administration] is about the only game in town for business. One thing we found out, for instance, is there are levels of loans that can be approved on site, but beyond that level, you have to go to D.C., and it can take weeks and months to get decisions on a higher loan amount. Businesses couldn’t afford the time to wait, so took the smaller amount. When they decided to apply for a larger sum, activity was suspended because SBA said, ‘We can’t keep sending you checks if you’re going to apply for a larger amount.’ “
But it’s not just dollar quantities that count. Every hour counts, says Schulz. He says analysis shows that any business out of operation for three weeks is much more likely to fail, with 40 percent to 60 percent of such firms failing over the following two to three years.
“The thing that is important about the early response is speed,” he says. “When you have limited resources to address disaster, knowing exactly where and how to apply those resources becomes crucial decision-making.”
Schulz points to one conversation in particular, with leaders at Gaylord Entertainment’s Opryland Resort, where water rose swiftly and guests had been moved. Schulz says he was able to give Gaylord leaders the phone number of the local electric utility’s CEO, so they could tell him directly that the recovery of power within a certain time would determine whether recovery and reopening took six months or two years. “Because they were able to get power back in 72 hours, their recovery was six months,” says Schulz of the resort.
In testimony to members of the U.S. Senate Energy and Water Development Appropriations Subcommittee last summer, Nashville Area Chamber Chairman Bert Mathews, a local developer, thanked such agencies as FEMA, HUD, SBA, and the Departments of Commerce and Homeland Security for their responses to the flood. Then he offered lessons and recommendations:
“First, with better warning, businesses could have saved hundreds of millions of dollars of losses,” he said. “Second, federal disaster assistance for business needs to be modernized. And third, the federal government must have mechanisms in place to mitigate future disasters.”
Among the examples gleaned from direct interviews:
“John Johnson of Mid-South Wire said he needed timely updates on expected flood levels. With six more hours of warning, they could have saved $3 – 4 million of inventory and equipment.”
“Colin Reed of Gaylord Entertainment Company said they received inaccurate water level predictions, and expressed frustration with the lack of coordinated and consistent communication between the Army Corps of Engineers and National Weather Service. “
Among the recommendations Mathews made:
- Increase SBA initial application loan limits from $1 million;
- Increase the speed in which businesses can receive funding;
- Amend the federal cost-share for FEMA from 75 to 90 percent;
- Determine what federal information about damaged businesses can be shared with local business organizations to accelerate response and recovery.
Working in Harmony
Nashville musicians know how to put together a band, not to mention demonstrate their versatility and flexibility in gig after gig. Turns out Nashvillians in general know how to band together too.
The Chamber’s own efforts were considerable, starting with gathering off-site at a community college due to their own offices being flooded. By May 5 a business recovery website had been established as a resource. “Open for Business” signs in English and Spanish were quickly produced and distributed. And staff posted flip videos on YouTube showing businesses in operation, in order to counter national perceptions that the entire city was under water and out of commission.
“We had to engage a little more of a case management approach,” says Schulz of his team’s data gathering and triage efforts. One industrial area, for instance, suffered heavy losses related to machinery on production lines. “So they had an entirely different challenge from someone who lost a service business on the floor of a building. The biggest task was helping them be in contact with other manufacturing businesses that had excess capacity to sell to them, to help them maintain their client list.”
One wire company handed off some customers to a competitor on a temporary basis, says Schulz, “with the knowledge all around that those customers would return when production was restored. At Gaylord, there were employees they didn’t want to lose, so they went to work for other hospitality companies in the area with a wink or a nod saying, ‘We know you’re going to go back to Gaylord when they open up.’ ”
Schulz says the chamber played a supporting role to the chamber and economic development department in Cheatham County in helping A.O. Smith, including finding some FEMA funds available to help keep a similar disaster from occurring in that facility in the future. Other Community Development Block Grant (CDBG) funding was discovered through conversations with officials with the Cedar Rapids Chamber in Iowa, who suffered their own catastrophic flood in June 2008.
Charged by Mayor Dean with leading the area’s recovery efforts, the Chamber organized a Business Response Team chaired by corporate leaders which conducted in-person visits with Davidson County businesses affected by the flood; matched business needs with donated services; conducted business resource fairs; and established a Business Response Team website at www.NashvilleBusinessRecovery.org created as a donation by local advertising agency GS&F.
In concert with the Metro Nashville planning department, the chamber had to generate its own business recovery data over two to three weeks, in part because federal data about affected businesses was in some cases unattainable from such agencies as FEMA and SBA because of regulations governing confidentiality of records.
By simply examining flood-affected land parcels, Chamber staff knew that more than 2,700 Davidson County businesses were impacted. Among findings highlighted by the Chamber one year after the flooding:
- Employment total of impacted Davidson County businesses: 14,499
- Annual revenue total: $3,597,000,000
- Approximately 5,900 workers living in Davidson County received significant damage to their homes, creating additional challenges for households and their employers.
- Estimated number of Davidson County flood-damaged firms that have not reopened: 300-400
- Estimated number of Davidson County jobs very unlikely to return: 1,528
- Businesses interviewed estimated losses over $300 million.
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- Facility 32.4%
- Equipment 28.1%
- Inventory 28.0%
- Other 10.8%
- Of firms surveyed, estimated operating capacity was expected to be 67 percent 12 months following the flood.
- After a year, the No. 1 hindrance to businesses’ recovery process was the economic downturn, with debt load increase and sufficient working capital both identified as the No. 2 hindrance.
No Happy Medium
Schulz shares one other observation about companies falling through the cracks. While larger businesses have access to capital, and smaller business can adapt quickly and tap into cash flow, “medium-sized manufacturing businesses are the most negatively affected, because usually the flood and business continuation insurance they have is not of sufficient quantity to meet their needs, and they don’t have access to any federal help,” he says. Those companies might employ 200 to 300 people, are mostly local and are usually privately owned.
“They’re faced with a decision — if they have three production lines and two were damaged, they may have to go with one for a while. One business had brand new machinery on flatbeds to increase capacity. After the flood, they sent that machinery elsewhere, sold it, as they had to inject $10 million to $20 million they hadn’t expected. One thing we’re doing is searching for ways to generate supplemental insurance for those businesses that allows them to layer the risk.”
Some of these companies, he says, had to go find additional investors after the flood. “There were warehouse facilities that just gave up on being close to the river, and had to investigate other places in this region. For all of them, Nashville is the perfect spot to be because of the ability to distribute goods. They’ve stayed, but we’ve lost employment as a result.
“By the end of the day, we might have 2,000 to 3,000 people who ended up losing their jobs because of the flood,” says Schulz. “The effect on our GDP basically neutralized a year’s worth of growth. That’s reason enough to focus on disaster recovery.”
