The majority of businesses rely on extensive supply chains that depend on hundreds of assets, including factories, power plants, and office buildings, even if they may only hold a small number of assets themselves. As a result, the risks of damage to any of these assets, including those from climatic hazards like flooding, drought, and wildfire, which can cause interruption, delay, and loss of profitability, are shared by all stakeholders in the supply chain. The frequency of extreme climatic events has grown, notably this summer’s heat waves in Europe, which broke all previous records and reached shockingly high temperatures due to a breakdown in the climate system. By 2026, environmental hazards in supply chains are expected to cost USD 120 billion. Today, we will take a closer look at how climate change is affecting our supply chains.
Why Do Organizations Need To Consider Their Supply Chain’s Climate Risk?
Hundreds of supply chain assets reliant on organizations are vulnerable to climate change. Climate hazards may have a significant influence on daily company operations and procedures if the supply chain is disrupted or comes to a stop. Any sustainability strategy must include a thorough analysis of the potential effects of climate catastrophe on your organization’s supply chain.For instance, supply chain interruptions can endanger public safety and health in the pharmaceutical business. The manufacturing and delivery of medicines can be delayed or stopped by supply chains when they are most needed worldwide, as was seen last summer when chemists were worried about fulfilling the demand for medications.
How Does Climate Change Disrupt Global Supply Chains?
When it comes to supply chains, there are several things to consider. Drought and heat stress, for instance, can affect energy infrastructure and halt output in manufacturing activities that require a lot of water. A drought and heat waves brought on water shortages in August and September 2022. This caused Sichuan Province Major, China’s industrial powerhouse, to shut down plants, limit hydroelectric power in the south, and disrupt supply networks for the semiconductor and auto industries.Infrastructure is damaged, and resilience is reduced by climate risks, which are becoming more intense. Infrastructure gaps restrict trade channels and lengthen wait times, disrupting the supply chain. Flooding in Belgium, the Netherlands, and Germany in July 2021 increased the number of late shipments by 26% to 32%.Because there are so many steps in the supply chain, even a little problem with one or two assets might result in significant delays. Additionally, consumers suffer when suppliers pass on increased costs to make up for profit losses brought on by delays. Therefore, it’s crucial to consider the whole scope of climate risk. With this knowledge, supply chain managers may choose suppliers with lesser exposure to climate risk or create backup plans that will support the continuation of business operations.The changing environment impacts the cost and availability of essential resources needed for manufacturing and transportation. For instance, the supply chains for agriculture may be impacted by water shortages, while growing energy prices may impact the production and distribution of commodities. To lessen these effects and reduce costs, businesses must discover waste-reduction strategies, energy-efficient transportation options, and sustainable raw material sources.
How To Build Climate-Intelligent Supply Chains?
Historically, data on climate risk that may be used to make decisions have been difficult to obtain from providers. However, various supply chain information technologies are available to organizations so they may acquire climate insight. These solutions offer essential detailed climate risk data regarding suppliers’ assets to ESG, Risk, and Supply Chain Managers. Additionally, it helps businesses to identify significant risks, communicate them with suppliers to reduce business interruption, support sustainability goals, and create backup plans by screening their whole portfolio and supply chain for climate hazards.No business should be unaware of the climate risk in its supply chain. Organizations may gain the information they need to adapt to climate change and strengthen supply chain resilience by adopting these climate intelligence tools.
Supply Chain Visibility and Traceability
The significance of supply chain visibility and traceability has risen due to climate change. To understand how their products affect the environment, businesses and consumers call for supply chain transparency. Businesses may manage and report on their carbon footprint using technology like blockchain and real-time monitoring systems, which also reduce environmental compliance risks and foster stakeholder confidence.
The impact of climate change on supply chains is a complicated and varied issue that calls for innovative thinking, strategic planning, and teamwork. Businesses must adapt to maintain supply chain resilience and minimize environmental effects as extreme weather events grow more familiar and customer preferences change towards sustainability. For businesses to effectively manage the storm of climate change, adopting sustainable practices, investing in robust supply chain networks, boosting supply chain visibility, and adhering to new laws are crucial measures. Businesses may protect their operations while advancing a more sustainable and resilient future by being proactive.