Supply Chain Risk and Climate Change, Part 2

Stephen DeAngelis

January 24, 2019

“In the age of globalization,” observes Mary Mazzoni (@mary_mazzoni), “corporate supply chains typically stretch around the world. Such complexity means it’s next to impossible for business leaders to assess potential risks at each stage of the value chain — which is especially problematic as water scarcity, extreme weather and other climate-induced impacts become the norm.”[1] In Part 1 of this article, I discussed what experts are saying about climate change as well as some of the global consequences their effects on corporate supply chains. In this article, I want to address what experts say companies can do to prevent, mitigate, or respond to disruptions caused by natural disasters spawned by changing climatic conditions.

 

Plan, plan, plan

 

David G. Victor, Co-Chair of the Cross-Brookings Initiative on Energy and Climate, asserts, “We must deal with the reality that the world is in for a whole lot of warming — which means that societies must prepare to adapt.”[2] I’m reminded of the title of a 1962 Ray Bradbury novel — Something Wicked This Way Comes. Although the book wasn’t about climate change, the title aptly describes what supply chain professionals are about to experience — something wicked. Mazzoni reports, “Over the last 30 years, an estimated $1 out of every $3 spent on development has been lost to extreme climate events, totaling $3.8 trillion worldwide.” And most analysts predict the worst is yet to come.

 

When you are forewarned about an imminent danger, the best thing you can do is prepare the best you can. Emma Cosgrove (@emmacos) writes, “Images of cracking roads and flooded runways are not inspiring, and it is easy to assume that no progress is being made to prepare. But it’s encouraging to learn that is far from the case. Climate change has two elements to consider — prevention and preparation — and transportation reliant businesses wield a lot of power in both.”[3] She goes on to list a number of preventative measures coastal U.S. cities are taking to counter rising sea levels. Although companies may feel impotent in the face of climate change, Cosgrove notes, “The health of the planet and the health of the economy go hand in hand. Keeping the economy functioning well puts companies with serious power in a financial position to make operational changes that can help.”

 

In a previous article, Cosgrove noted, “When a problem is as expansive as climate change it can be difficult to digest and address, but when it comes to fixed assets like ports, airports and even major roads, supply chains can push for the necessary changes to these entities and plan for what’s to come right now.”[4] Although the fixed assets she mentions are often financed and operated by government agencies, she suggests companies can press the appropriate authorities to make the proper preparations and changes to withstand the coming storms. She also recommends several things companies can do to help themselves. “The first step individual businesses can take today,” she writes, “is to determine what assets essential to their operations are most likely to be affected and make a plan. … Planning contingencies now will save stress and funds later. This planning goes for facilities, but also transportation routes.” She notes companies can also do their part to reduce contributors to climate change. But, she notes, reducing carbon emissions “while necessary in their own right, are not the same as preparing to withstand the problem itself.”

 

Failure to plan could be disastrous. Fouad Egbaria (@FEgbariaMM) bluntly states, “When it comes to natural disasters, like hurricanes, the question is not ‘if’ but ‘when’. For manufacturers, natural disasters — whether it’s hurricanes, earthquakes, wildfires, or something else — pose a number of significant hurdles to supply-chain stability. For example, transportation of supplies can become impossible for weeks at a time as a result of flooded roadways and production on needed materials, like metals, can come to a halt in affected areas.”[5] Planning won’t prevent natural disasters but they can help mitigate their effects.

 

Quin Rodriguez, vice president, strategic marketing with Riskconnect Inc., observes, “How your business responds to these occurrences can be the difference between successful risk mitigation and risk nightmares.”[6] He adds, “Businesses must take the time to proactively identify the potential risks they can face and develop remediation strategies to address these risks. These plans must go beyond the typical workplace incidents, focusing instead on the unique disasters that can potentially arise in their location(s) and how to ensure their ongoing success both before and after these disasters.” Rodriguez insists, contingency plans and continuity of operations plans must begin with employee safety. If they’re not safe, the best plan in the world will fail to meet its objectives. Next, he states, make sure infrastructure can handle the disaster. He concludes, “Critical to ensuring business continuity is understanding the upstream impact of a disaster, specifically the effects on supply lines and inventory. To avoid interruptions in operations, risk teams should work to develop pre-event strategies to successfully redirect supply lines as well as identify potential emergency/back up vendors that could be available to offset any lost materials. These stopgaps can prove beneficial and allow for uninterrupted operations while working to re-establish your supply chain post disaster.”

 

Specific steps to take

 

Nicholas Bahr, global practice leader for operational risk management at DuPont Sustainable Solutions, suggests six concrete steps a company can take to generate and implement a strong business continuity management (BCM) plan.[7] Those steps are:

 

Step 1: Establish Planning Roles and Responsibilities — “Identifying and understanding who in the company is responsible for specific essential tasks during and after a severe event is critical to effectively responding and recovering from the event.” As Rodriguez noted, these people need to be in secure places where their safety is assured. Otherwise, the plan could be crippled from the start.

 

Step 2: Conduct Risk Assessment — “Understanding all the risks that can impact the business during a severe event is critical to effectively managing them. Companies should conduct a thorough risk assessment to identify and prioritize all risks that could arise during a severe event.” Understanding “all” the risks is a big ask and may be unrealistic. As noted below, the best way to prepare response teams is to exercise the plan. Such exercises might uncover unexpected risks.

 

Step 3: Conduct Business Impact Analysis — “Determining the impacts of all identified risks on specific business processes will help companies to appropriately prioritize available resources to mitigate the loss or disruption of key operations and services.” Leveraging cognitive technologies capable of handling myriad variables can help companies understand some of perturbative effects of disruptions.

 

Step 4: Develop Continuity Strategies — “Having plans, procedures and agreements, such as memorandums of understanding with emergency suppliers, in place ahead of time to prevent, detect, respond, and recover from severe events are fundamental building blocks to sustaining operations, no matter the disruption.” Redundancy is a supply chain risk manager’s best strategy. Just make sure redundant suppliers aren’t located in the same geographical area.

 

Step 5: Plan Testing, Training, and Exercises — “There’s an adage in the risk management business that says, ‘You must test to ensure success.’ Once a business continuity plan has been developed, it is wise to take the time to train staff so they are familiar with their responsibilities, and conduct simulation exercises to put the plan into practice so that when a severe event occurs, the company will be prepared.”

 

Step 6: Plan Maintenance — “Things inevitably change within a business over time, whether adding facilities, shifting personnel to different locations, or changing suppliers and vendors. It is therefore important to regularly review and update the business continuity plan, ideally whenever there is a change to the business or operations. This will keep companies in the best possible position to manage unforeseen severe events when they occur.” A plan gathering dust on a shelf could mean a company finds itself in history’s dustbin following a disaster.

 

Concluding thoughts

 

Bahr concludes, “Severe weather events or other disasters that can cause a lengthy disruption in operations are bound to occur, so smart companies are taking the time to plan ahead and anticipate those situations.” Rodriguez adds, “If you haven’t already worked on your unique disaster recovery plans, today is the day to start. When it comes to remediation strategies, it’s better to have it and not need it, than to need it and not have it.” The concluding part of this series will discuss how big data and artificial intelligence can help ensure companies implement the best plans possible.

 

Footnotes
[1] Mary Mazzoni, “Top Companies Come Together to Fight Climate Risk in Supply Chains,” Triple Pundit, 18 September 2018.
[2] David G. Victor, “More bad news on the global warming front,” The Brookings Institution, 5 December 2018.
[3] Emma Cosgrove, “It’s time to dive into the 2 P’s of climate change,” Supply Chain Dive, 30 November 2018.
[4] Emma Cosgrove, “From ports to roads: How supply chains can prepare for climate change — now,” Supply Chain Dive, 29 November 2018.
[5] Fouad Egbaria, “Mitigating Supply-Chain Risk When Natural Disasters Strike,” MetalMiner, 8 November 2018.
[6] Quin Rodriguez, “Staying Ahead of Risks During Disasters,” EHS Today, 21 August 2018.
[7] Nicholas Bahr, “Don’t Ignore Mother Nature – Plan Now to Ensure Business Continuity When Disaster Strikes,” IndustryWeek, 23 February 2018.