Climate and supply chain resiliency

The devastating floods in Western Europe last month have left many, including me, stunned. The floods have left people homeless, washed out villages along the affected rivers, and halted production at factories. Having been born and raised in Bangladesh, I am and have been for a long time, intensely aware of the effects of climate change, warming temperatures, and rising sea levels. On August 9, the Intergovernmental Panel on Climate Change (IPCC) released its latest report, delivering the assessment that climate change is ‘widespread, rapid, and intensifying’.

To see this level of devastation in my adopted country of Germany, and even more recently in the Henan Province of China, leaves no room for doubt that the effects of climate change are greater than ever before. In many cases, we are woefully unprepared to be able to deal with it.

The specific intensity of some of these events may be hard to predict, but that should not have any bearing on our ability to prepare. Many supply chain professionals are still caught off-guard by these weather phenomena and wonder what could’ve been done differently to mitigate the impact of the devastating events.

The COVID-19 pandemic has shown that the inconceivable is not necessarily impossible.

It is likely that we’ll continue to experience once-in-a-millennium floods or wildfires more frequently, and that they’ll become commonplace. Before it starts to feel familiar, supply chains professionals must take note and understand how this affects their long-term strategic planning and network setup. They also need to ensure that business continuity plans are in place for strategic locations and products. While we cannot always predict the impact of specific events or stop them from happening, we can certainly monitor forecasts and change the way we react to them.

Winter Storm Uri in February knocked many petrochemical facilities offline in Texas, United States. The resulting force majeure declarations were significantly higher than Hurricane Harvey – previously the most devastating natural disaster recorded in the state – and affected a wide range of plastics production. Three of the most widely used building blocks – polyethylene, polypropylene, and polyvinyl chloride – were particularly hard hit, causing ripple effects through industrial supply chains that we’re still seeing today. Everstream Analytics’ in-house Applied Meteorology team had been warning since mid-January that the polar vortex had become unstable and that it was anticipated to become even more unstable, ushering in arctic air into population zones around the Northern Hemisphere and create stormy conditions.

A record-breaking heatwave and subsequent severe wildfires in British Columbia, Canada in June caused rail disruptions in the region, impacting freight movement and delaying cargo operations at the Port of Vancouver. Rail cars carrying goods to the port had been stranded, and container processing had been delayed at the port with backlogs expected to persist. Everstream Analytics data shows that the number of wildfires in 2021 is higher than the 10-year average and continued cargo disruptions remain likely through the summer months.

The recent floods in Germany and other parts of Western Europe, including Belgium, Luxembourg, and the Netherlands, affected areas that are home to industrial zones that host dozens of high-precision manufacturing suppliers that supply specialized parts for the automotive, aerospace, technology, and mechanical engineering sectors. The extent of flood damages implies that recovery time for the affected facilities may not be quick. Until now almost 90 companies in the affected areas have announced production halts, force majeure declarations, or even profit warnings. Similarly, the extensive floods in Henan Province, China have caused significant damages to transportation links, including rail links, and have affected production operations at facilities in the automotive, technology, life sciences, and industrial manufacturing sectors.

If you haven’t had to think about how the abovementioned disruptions affect your supply chains, you’re one of the lucky ones. However, luck isn’t always a great predictor of success.

Organizations need to have good end-to-end visibility for their supply chains by understanding where not just their Tier-1 suppliers operate, but even beyond that. Undertaking supplier network discovery exercises through data-driven analysis can help to get ahead of where sub-tier vulnerabilities may lie.

Once such an exercise is complete, sub-tier manufacturing locations must be overlaid with risk data. Risk data, in the form of forecasts and probabilities, can help gauge the risks those locations are exposed to, and understand how they might be impacted should a risk, such as a wildfire, were to materialize. Forecasts and snapshots of current issues, like those captured by Everstream Analytics’ proprietary Drought Index developed by our in-house Applied Meteorology team, can help identify risks to monitor closely and evaluate issues that may turn out to be problematic in the short- to mid-term.

Once the risks are identified, companies must assess the potential impact to their materials, products, and eventually, revenue at risk should a critical location be disrupted and be unable to operate. Many organizations still struggle to pull data from various systems and assess the impact of a disruption promptly. However, while a crisis is unfolding is not the time to get such information in place. That should be part of your organization’s risk management program, ideally well before disruptions hit.

And finally, companies must ensure that a robust risk management program has measures and playbooks in place that help leaders identify what is at risk – be it people, products, materials, supplies, or shipments – and make decisions quickly.

Those that react the quickest are likely to come out of a disruptive event the least scathed.

Published: August 2021

Images: iStock