The Cost of Climate Change on Your Supply Chain

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On the heels of the United Nations Paris Climate Change Conference, now seemed like an appropriate time to revisit an often talked about supply chain topic. The impact of climate change on your supply chain operations. Natural Disasters Tumultuous weather is perhaps the most commonly thought of supply chain risk related to Earth’s climbing temperature. Undoubtedly, the impact of wild weather is substantial. An increase in the number of devastating hurricanes, earthquakes, wildfires, floods and droughts should be worrying to everyone, not just those concerned for their supply chains. In 2014, three of the top five biggest supply chain disruptions were related to natural disasters. Typhoon Halong in Southeast Asia capped the list, causing a 41-week disruption at a cost of more than $10 billion for companies doing business in the region. Are we looking at a future where Mother Nature is responsible for the majority of disruptions? Companies will need to evaluate the risk of losing a supplier in a specified geographic region, and whether there’s a case that needs to be made to diversify where raw materials are coming from, having multiple suppliers, and how far to take contingency plans. The same can be true for evaluating different transportation options. Severe weather can cause substantial delays, or even total shutdowns, of certain routes or modes of transportation. Supply chain managers need to have backup routes and options available and at the ready, and need to be able to quickly and effectively run scenario simulations to determine which course of action will allow for the smallest overall impact. Another thought I had is whether these severe weather phenomenon will cause shortages of certain raw materials, like what we’re currently seeing with cocoa. What will that do to already unstable price fluctuations in some global commodity markets? Will supply chains be able to cope with the potential added costs? Can we expect to see an increase in civil unrest (and the associated supply chain challenges) as communities fight over dwindling resources? A good supply chain risk plan should take into account all of these factors. Increased Regulation Another related climate change supply chain cost is a move toward more regulation when it comes to carbon footprints. Emissions standards, safety standards, and new environmentally friendly legislation are likely to continue to emerge over the coming years. Driven by consumers and their growing demands, governments are taking heed and moving plans into action when it comes to protecting the environment and ensuring businesses are doing their part. Kevin O’Marah recently published his thoughts in a Forbes article, stating he believes a carbon tax applied to manufacturing and distribution is the way to go. Why? Because supply chain practitioners are already highly adept at managing trade-offs in pursuit of a goal, and the climate crisis is exactly that type of problem. O’Marah also points out that if we moved to de-materialize society, we’d have a better chance of thriving. That means placing higher value on commodities that don’t need to be packed or shipped – things like ideas and great content, and other assets that can easily be transmitted digitally. While I tend to agree that we’re an overly materialistic society (at least in North America), the reality is we’ll never be able to move 100% away from the creation and distribution of non-digital goods. People will always need clothes, food, and other basic necessities that can’t just be conjured out of thin air. I also tend to be a bit of a skeptic when it comes to accountability. New legislation to monitor carbon emissions and incentivize big businesses to take a smarter stance on environmental issues is great. But who is going to police adoption and how are they going to do it in a fair and just manner? Loss of Productivity Perhaps what I found most surprising while I was doing a little research for this piece was the potential loss of productivity that climate change could cause for some supply chains. I’m not talking about being unable to source raw materials, or transportation disruptions due to giant snow storms, I’m referencing the fact that your people – the very heart of what makes your supply chain tick – lose productivity the hotter the planet gets. A new report by Verisk Maplecroft points out global manufacturing hubs in South-East Asia may experience significant falls in productivity over the next 30 years due to rising temperatures and an increase in extreme heat stress. Heat stress can cause dizziness, fatigue, nausea, and even death in some cases death. Nine of the 10 warmest years on record have occurred in the 21st century, and the report shows by 2045 nearly half the world’s population (47%) will live in countries categorized as at ‘extreme risk’ for heat stress, so the problem is looking like it will only get worse. Workers whose primary duties keep them inside may not be impacted as heavily (provided there is reliable air conditioning), but any supply chain that relies on individuals who work outdoors should prepare themselves for a dramatic spike in illness and absenteeism among their staff. The report is predicting economies including Singapore, Malaysia, Indonesia, and the Philippines could be as much as a quarter less productive than they are now. The number of heat stress days may rise to as high as 364 in Singapore and Malaysia, with Indonesia looking at 355 days and the Philippines 337. What kind of toll will that take on businesses who rely on workers in those countries? Yes, the risks associated with heat stress and lost worker productivity are amplified in warmer countries dependent on manufacturing, construction and agriculture, but if temperatures continue to rise globally, how long will it be before we start to see this as a major problem elsewhere? And with all that needed air conditioning to keeps indoor workers cool, are we just adding more fuel to the fire?

What other ways is your supply chain going to be impacted by climate change? Let us know in the comments section.

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