How Prepared is your Supply Chain for the Fight Against Climate Change?
Is your supply chain ready to tackle Climate Change? With extreme weather events on the rise, organisations need to be taking proactive steps to ensure the continuity of their supplies.
Unprecedented heatwaves, forest fires, floods, droughts, freezing temperatures and the increasing likelihood of natural disasters like hurricanes – and that’s just 2023. While the pandemic was a hugely disruptive event, supply chains are largely recovering from its impact. With Climate Change, however, this is a fight that organisations will have for years, perhaps decades, to come.
Climate hazards, like the ones outlined above, are increasing in frequency and intensity. It is estimated that by 2026 environmental risks in supply chains will cost companies US $120 billion. Major events damage infrastructure and reduce resiliency in supply chains. This causes increased lead times, and costs as organisations have to source additional parts from suppliers charging higher prices.
In 2022 the Harvard Business Review conducted research on climate-related risks on 12,000 supplier sites in the United States and China that provide goods and services to manufacturers in the high-tech, automotive and consumer goods industries. The study found that nearly half of surveyed US companies had experienced an increase in climate volatility (a figure that was a whopping 93 percent in China and Taiwan), but that only 11 percent of suppliers were fully prepared for weather-related disruption.
With ocean heat records being broken this summer, and rising sea levels threatening low-lying ports and river-based logistics becoming less predictable and dependable, it seems that everywhere you look, there is a potentially massive risk waiting for unprepared organisations.
The Impact On, And Of, Supply Chains
A recent survey conducted by the Business Continuity Institute found that 42 percent of organisations surveyed had experienced supply chain disruptions due to extreme weather events. The risk of disruption, also shown in the HBR research, is clearly rising, and organisations are having to deal with increasingly complex situations arising for both domestic and international supply chains.
Some supply chains, like those within the electronics industry where there is a heavy reliance on suppliers in East Asia, may have a higher risk profile due to geographical concentration or vulnerable logistics or production processes.
One positive impact of the increased disruptions is that organisations are now more acutely aware of previously unknown bottlenecks in their supply chains. This can allow for better planning and management of suppliers, and the ability to look ahead and move towards better practices designed at coping with future disruptions.
While dealing with the impact of extreme weather events on supply chains, organisations must also be aware of the environmental impact that their own supply chains have. The US Environmental Protection Agency estimates that supply chains account for more than 90 percent of an organisation’s greenhouse gas emissions.
Organisations need to fully understand and measure their impact throughout the supply chain, as well as educating and preparing their employees for the changes that will likely need to take place to meet ESG commitments. Organisations who do this, as well as creating a clear list of their ESG priorities (a focus on their carbon footprint; just-in-time versus stockholding; aiding suppliers in high-risk regions) can reduce the risk associated with climate events.
A Word on Raw Materials
We’ve touched upon the major risks facing supply chains due to extreme weather events and climate change. One area in particular that requires greater attention, perhaps not just from organisations but from national governments and international organisations, is in raw material production and raw material supply chains.
Rising temperatures are already taking their toll on crop yields and, with scientists predicting that the 1.5 degree ceiling on temperature rises is going to be breached, this is likely to get worse. Crops such as coffee, which relies on a particular set of conditions to provide yields sufficient to meet global demand, are already struggling, and regions where extreme weather hits hardest, such as sub-Saharan Africa, crop yields are dropping still further.
It is widely predicted that water will become the next resource that is most closely prized. Two-thirds of the global population are predicted to be facing water shortages by 2025, and water is already being traded as a commodity in the US. Access to clean drinking water should be a right, but as this resource becomes more scarce, it may come to be treated in much the same way as oil, ores or precious metals.
Without these vital resources, the raw material link in the chain, cannot exist. Everything from agriculture and fashion to food and even automotive manufacture, rely on raw materials. If risks are not mitigated, then organisations face potential disasters.
Mitigating Climate Risks
The fight against climate change is a larger one than any organisation can take on themselves, though there is plenty that they can do to contribute. However, for the same organisations there is the consideration on how to mitigate the risks to their supply chains in the short and medium-term too.
Much of this boils down to the awareness of the risks and the situations that may be faced, but there are some specific, proactive, actions that can be taken.
- Map the Supply Chain
This map will cover every site that the organisation has around the world, at every tier of the supply chain, and including all sub-tier and sub-contract suppliers that are used. Data should be collected on risks, costs, products being produced, delivery lead times, key logistical routes, and even the carbon footprint associated with these sites.
By conducting a risk assessment, organisations will be able to be more proactive in their risk mitigation and put plans and processes in place. The plans and processes then need to be shared with the suppliers to help them establish what needs to be done should an extreme weather event occur.
- Consider Your Sourcing and Supply Chain Strategies
Beyond setting up a solid, two-way flow of communication and feedback with the suppliers, organisations should consider what strategies they need to employ for sourcing and in their supply chains. Instead of operating a Just-in-Time strategy they may look to hold a greater volume of stock, or shorten supply chains by developing more local suppliers.
Organisations may also look to build redundancy into the supply chain with suppliers and supply routes. In some cases, manufacturers are already looking at the feasibility of ‘dual supply chains’ where there are two supply chains delivering the same products via two different routes, so there is still continuity of supply even if one breaks down.
- Use Technology and Real-Time Data
Technology can support existing strategies, or provide access to real-time data, on suppliers, supply chains and climate events and natural disasters. Not only will the real-time information allow organisations to plan more effectively ahead of any events that may disrupt suppliers or supply chains, but they can share data with suppliers to allow them to do the same.
Further to this, the organisations will be able to use this data to form part of ESG and CSR reporting, showing what they are doing both internally and externally to fight climate change.
