As supply chains continue to garner negative headlines — thanks to snarled transportation systems, closed factories, and product shortages — supply chain professionals are facing a future in which severe weather will continue to give them headaches. The Resilinc Editorial Team observes, “Climate change and the extreme weather events it causes are becoming larger concerns for supply chain managers, their C-suite bosses, corporate boards, and major investors.”[1] To learn how much of a concern climate change is becoming for supply chain operations, Resilinc partnered with the University of Maryland and other academics to answer questions like: “How exposed is our global supply chain network? Which critical sites have the highest exposure in terms of revenue impact? Which types of events could potentially affect each site? Are appropriate business continuity plans in place to protect our operations?”[2] They found, “Most companies are ill-prepared for climate-related disruptions.” They also found, “Companies increasingly have access to the advanced data analytics and best practices necessary to make their supply chains more resilient.”

Supply Chain Climate Change Risks are Rising

Climate journalist Camilla Hodgson (@CamillaHodgson) reports, “Risks to global supply chains are rising from the increasingly severe effects of climate change laid bare in a landmark UN report, and could place extra pressure on fuel stability and essential goods worldwide.”[3] Of greatest concern may be disruptions to food production. The consequences of climate change could so severe that Derecka Alexander (@dr_derecka), a fellow at the American Association for the Advancement of Science Policy, writes, “The increase in the intensity and frequency of extreme weather-related disasters across the country may have many of us wishing we could click our heels and go back to times when weather did not disrupt our agricultural, forestry and rangeland production systems as often as it does today.”[4] Inland climate change concerns, however, are matched by coastal climate concerns like intense hurricanes and rising sea-levels.

Author Jacques Leslie (@jacqules) writes, “The Covid pandemic has rightly received most of the blame for global supply chain upheavals in the last two years. But the less publicized threat to supply chains from climate change poses a far more serious threat and is already being felt, scholars and experts say.”[5] Austin Becker, a maritime infrastructure resilience scholar at the University of Rhode Island, told Leslie, the pandemic is “a temporary problem,” while climate change is “long-term dire” problem. He added, “Climate change is a slow-moving crisis that is going to last a very, very long time, and it’s going to require some fundamental changes. Every coastal community, every coastal transportation network is going to face some risks from this, and we’re not going to have nearly enough resources to make all the investments that are required.”

Journalists Shefali Kapadia (@skapadiaDC) and S.L. Fuller (@_SLFuller) report that in 2020 there was a record “22 weather and climate disaster events, each costing at least $1 billion, according to the National Centers for Environmental Information. The previous record for billion-dollar events in a year was 16, in 2017 and 2011. The costs of 22 events of 2020 combined exceeded $96 billion in damages.”[6] Last year wasn’t much better. In 2021, the U.S. experienced 20 billion-dollar weather and climate disasters — just one short of tying the record.[7]

Facing the Risks

Businesses do not have the luxury of ignoring climate change risks. They can do their part in trying to mitigate the effects of climate change through sustainability efforts; at the same time, however, they must prepare to address the inevitable consequences of climate change. The staff at Supply Chain Dive notes, “Consumers expect their packages to arrive and their local stores’ shelves to be stocked, even in the harshest of conditions. And logistics networks become all the more important during climate disasters and severe weather events, shuttling essential supplies into the areas most affected.”[8] If the pandemic taught us one lesson, it should be that supply chain professionals are every bit as important as first responders when disaster strikes. The first thing that companies must do, according to analysts from Moody’s, is conduct a risk assessment. They note, however, “Risk assessment in today’s economy means evaluating factors far outside the obvious.”[9] Nevertheless, starting with the obvious isn’t a bad idea. They recommend asking, “What are the risks we can identify and quantify given modern science and technology? So, things like the risk of wildfires, flooding, earthquakes, etc.”

Like Moody’s analysts, Rodney Irwin, a managing director at the World Business Council for Sustainable Development, insists companies must quickly move beyond the obvious. He told journalist Elsa Wenzel (@elsamary), “Let’s stop predicting the future because we’ve proven we’re incapable of doing it. Instead of asking, as part of our risk determination process, how likely something is to happen, we [should] ask a more cerebral question, which is, if it did happen, could we manage it? That’s a very different question.”[10] To some extent, even “what if” questions try to predict the future; although, weather-related events are fairly well known. When it comes to dealing with climate-change-related events, the Resilinc/University of Maryland team suggests taking the following actions:

• Map your supply chain in depth. “This means identifying all the sites across the world that directly or indirectly support manufacturing, warehousing, distribution, and repair by land, sea, and air.”

• Conduct a comprehensive assessment of each site’s risks. “This examination should include its vulnerability to a local natural disaster, local economic indices, geopolitical risk factors (safety, security, corruption), proximity to suppliers and customers, access to stable energy sources, availability of natural resources, long-term labor (skilled and unskilled), and so on.”

• Think beyond your own sites. “All too many business continuity managers focus on their company’s own locations and don’t pay adequate attention to those of their suppliers and their suppliers’ suppliers.”

• Build the business case for proactive mitigation. “Companies must quantify the revenue impact of losing individual sites to make more informed decisions about how much to spend on improving the resiliency of their supply chains and prioritizing those investments.”

• Conduct simulations of how extreme climate-related events will affect your supply chain. “Such exercises can be invaluable for developing playbooks for responding to various scenarios and can help executives analyze and compare different supply-chain-network configurations and sourcing options to manage climate risk more effectively.”

• Ensure climate models are sufficiently sensitive. “Supply chain executives must be especially vigilant to detect such early warning signals of climate volatility.”

• Design a climate-resilient supply chain footprint. “Use all the information described above to create a supply chain whose response to climate risk ensures not only business continuity but also distinct competitive advantage.”

• Transfer risk with insurance. “Companies that quantify the revenue impact that the disruption of each site would have can more easily identify locations whose risks should be protected via insurance.”

• Bolster your suppliers’ business continuity plans. “It’s critical to inform and contractually obligate suppliers about the necessity of having backup plans, alternate production sites, and mutually acceptable recovery timeframes.”

• Invest in early-detection systems and associated expertise. “AI-powered scanning of climate news and events in many languages can provide weeks’ and sometimes months’ notice of emerging climate risk events and developments. … Such climate monitoring and predictive systems have become essential to running a globally dispersed supply chain.”

Concluding Thoughts

Wenzel concludes, “If risk management is the responsibility of corporate boards of directors, they have plenty of reckoning to do in the coming months and years about the effectiveness of existing risk management procedures and policies.” In this effort, they will find supply chain professionals to be their closest allies. The Resilinc staff concludes, “While it remains difficult to sort out extreme weather associated with natural climate cycles vs. those events driven by the changing climate, it’s clear that supply chains worldwide face major climate-related threats. Managers must step up efforts to detect and respond to these.”

Footnotes
[1] Editorial Team, “Extreme weather is risky business for supply chains,” Resilinc Blog, 17 May 2022.
[2] Sandor Boyson, Michael D. Gerst, Laharish Guntuka, Tom Linton, Greg Muraski, Bindiya Vakil, and Sumit Vakil, “How Exposed Is Your Supply Chain to Climate Risks?” Harvard Business Review, 2 May 2022.
[3] Camilla Hodgson, “Risks to global supply chains rising as climate change worsens, IPCC warns,” Financial Times, 1 March 2022.
[4] Derecka Alexander, “Hurricanes, Wildfires, Tornadoes, Oh My!” National Institute of Food and Agriculture, 19 April 2022.
[5] Jacques Leslie, “How Climate Change Is Disrupting the Global Supply Chain,” Yale Environment 360, 10 March 2022.
[6] Shefali Kapadia and S.L. Fuller, “4 types of billion-dollar weather events tested supply chains in 2020,” Supply Chain Dive, 1 June 2021.
[7] Adam B. Smith, “2021 U.S. billion-dollar weather and climate disasters in historical context,” Climate.gov, 24 January 2022.
[8] Staff, “How supply chains contend with severe weather and climate disasters,” Supply Chain Dive, 1 June 2021.
[9] Moody’s Analytics CRE, “How Evaluating Risk Can Prepare You for the Worst of Climate Change,” Commercial Observer, 31 January 2022.
[10] Elsa Wenzel, “The risky business of climate risk: ‘Stop predicting the future’,” GreenBiz, 8 March 2021.