Climate change and the extreme weather events it causes are becoming larger concerns for supply chain managers, their C-suite bosses, corporate boards, and major investors. And for OEMs in virtually every manufacturing industry, supply chains are where much of their climate change risk lies.
Climate change first arose as a topic in supply chain management because most of the greenhouse gases (GHGs) emitted by OEMs and large retailers are produced by supplier and logistics firms. (See Resilinc blogs on this topic Digging into Scope 3 Supply Chain Greenhouse Gases and Supply chains are a leading cause of GHG emissions, here’s what some corporations are doing about it.) Physical risks to supply chains from climate change are only recently coming into focus. This is not because supply chains have been immune to climate change and extreme weather—on the contrary, the 2011 floods in Thailand are still remembered as a career-defining event in the supply chain profession—but because of the technical difficulties of attributing a specific event to climate change.
The consensus among scientists is that a warming climate has already begun to make many droughts, heatwaves, floods, cold spells, and other extreme weather events more frequent and more intense—and these trends will continue as atmospheric greenhouse gas concentrations continue to increase. Yet, identifying the “climate signal” in any individual extreme weather event has until recently taken a year or more.
To provide faster analyses, climate scientists from Europe, the United States and India partnered in 2014 with the Red Cross/Red Crescent Climate Centre to form World Weather Attribution. In recent years, WWA has determined, for example, that climate change made rainfall and flooding worse in Western Europe’s July 2021 floods and Southern Africa’s winter 2022 floods—but not in Vietnam’s fall 2020 floods.
These high-level scientific analyses are of interest to governments, aid groups and multilateral funders like the World Bank, but they don’t offer managers much in the way of useful intel on how climate change is increasing the risks of disruption in their supply chains. Resilinc suggests instead a bottom-up assessment based on an OEM’s own supply chain.
This of course starts with mapping the sites across the world that supply your business, including manufacturers, warehouses, and logistics providers several tiers below direct suppliers. Mapping is a resource- and time-intensive activity, but the technology and data analytics offered by Resilinc or a similar firm can significantly streamline the effort required.
Then, identify suppliers and sites that are essential to the firm’s highest revenue solutions, and initiate risk assessments focused on those sites with surveys and a dive into historical climate and supplier performance data to uncover the extent of previous weather-related disruptions and the climate trends for a particular site or region.
As described in a recent Harvard Business Review article, Resilinc collaborated with the University of Maryland Supply Chain Management Center to analyze climate change supply chain risks for 100 OEMs in high tech, automotive, and consumer goods industries.
For 12,000 sites in these OEMs’ supply chains, researchers analyzed years of satellite-generated weather data, then cross-referenced that with Resilinc data on how much revenue an OEM would lose if a particular supplier were disrupted by a climate-related event, whether the supplier had backup sites available, a business continuity plan, time-to-recovery estimates, and other factors.
The results were sobering: 93% of the sites in China and Taiwan were experiencing increases in climate variability consistent with IPCC forecasts. And the owner/operators of almost half of these sites had no business continuity plans or alternative sites lined up to meet customers’ demands quickly in the event of a weather disaster.
While it remains difficult to sort out extreme weather associated with natural climate cycles vs. those events driven by the changing climate, it’s clear that supply chains worldwide face major climate-related threats. Managers must step up efforts to detect and respond to these.
