Much of the world’s economic production is structured around a complicated network of interconnected supply chains. Supply chains support global trade in goods worth nearly $20 trillion annually. They make it possible to produce everything from cars and computers to food and life-saving medications. The final products can contain thousands of parts from around the world. These supply chains have been refined to provide maximum efficiency and speed.
However, the global COVID-19 pandemic and severe weather events raise concerns about supply-chain risks and resilience. The probability of annual events that are more severe than what manufacturing assets are designed to withstand rises due to climate change, increasing the possibility of supply-chain disruptions.
Weather-related catastrophes like hurricanes, flooding, heat waves, and wildfires have alarmed boardrooms across industries and made leadership teams aware of the significant financial risk of climate change. How vulnerable is our global supply chain, executives are now asking.
Which crucial websites are most exposed in terms of how they affect revenue? What kinds of events have the potential to impact each site? Have the necessary business continuity plans been implemented to safeguard our operations?
Creating a Climate-Ready Supply Chain: A Guide
Here are some steps manufacturers can take to reduce risks associated with climate change. Both the University of Maryland-Resilinc research project and Resilinc surveys of 200 companies that are actively preparing their supply chains for climate risks served as the basis for these findings.
Mapping Supply Chain
This entails locating every location on the planet that either directly or indirectly facilitates the production, warehousing, distribution, and repair by land, sea, and air. Gather information about each’s costs, threats, turnaround times, and carbon footprints. Every year, this data needs to be updated.
Its susceptibility to regional natural disasters, local economic indicators, geostrategic risk factors (safety, protection, lack of accountability), closeness to suppliers and customers, availability of natural resources, access to stable energy sources, long-term labor (skilled and unskilled), and other factors should all be considered in this analysis. Because there is no practical way to mitigate climate risk, such assessments are essential.
Thinking Outside the Box
Business continuity managers should pay more attention to the locations of their suppliers and those of their suppliers’ suppliers instead of concentrating solely on their own locations. Companies that actively manage their extensive supplier networks are better able to quickly switch to alternative sources and maximize system-wide resources during disruptions than those that don’t.
Construct A Business Case For Preventative Mitigation.
To determine how much to invest in boosting the resilience of their supply chains and how to prioritize those investments, businesses must quantify the earnings impact of losing specific sites.
Run Simulations To See How Your Supply Chain Will Be Impacted By Extreme Climatic Events.
Executives may study and compare alternative supply-chain network designs and sourcing possibilities by using such exercises to establish playbooks for reacting to different scenarios and managing climate change risks more successfully.
Sensitive Climate Models
The model produced several unexpected results, such as Sacramento having the second-highest rise in severe precipitation throughout the two-decade research period and Los Angeles having the most increase in cold days in the United States. Executives in the supply chain must exercise great caution to spot these early indicators of climatic unpredictability.
Supply Chain With A Climate-Resilient Footprint
Create a supply chain that responds to climate risk in a way that provides not just company continuity but also a clear competitive advantage using all the information given above.
In 2005, when Hurricane Katrina struck, Procter & Gamble’s coffee processing and packaging plants in New Orleans were responsible for 50% of the company’s entire U.S. coffee output. P&G engineers located industrial properties that were six to nine feet above sea level when they constructed those buildings using satellite images. Additionally, each building was built to resist gusts of 130 to 140 mph. P&G was the first manufacturer to resume operations in New Orleans following the severe Hurricane Katrina floods in 2005 as a result of these actions.
Risk Reduction With Insurance
Companies can more readily identify sites where risks should be covered by insurance if they calculate the revenue effect that each site’s interruption would have.