Weather-related supply chain risks shouldn’t be ignored
October 3, 2017
As extreme weather events become more frequent, it is more crucial than ever for companies to prepare every link in their supply chain.
The effects storms like Harvey, Irma and Maria can have on supply chains are intensifying as storms become more and more severe. Companies are dependent on ports, highways, railroads and runways for receiving and shipping raw materials, parts and goods. When extreme weather disrupts transportation, a company’s supply chain can be compromised and that can be very costly.
When you factor in global supply chains, the risks can become even more pronounced. When Japan was faced with an earthquake in 2016, several major Japanese auto manufacturers and parts manufacturers had to cease production. Japanese supply analysts emphasize how supply chain disruptions can be minimized through both “lean” or “just in time” production, combined with post-event planning on shifting production to other plants not impacted.
Despite an increasingly global economy, businesses across many industries remain surprisingly dependent on a few sources in a single region, which leaves supply chains vulnerable to disruptions like extreme weather events.
The 2017 Global Risks Report classified extreme weather events as the top risk in terms of likelihood, and supply chain disruptions due to extreme weather have increased 29% since 2012, according to research from Zurich Insurance and the Business Continuity Institute. Despite this awareness, many large corporations have failed to adequately examine the weather-related risks associated with their supplier locations.
In a recent interview with The Wall Street Journal, Nick Wildgoose , Global Supply Chain Product Leader at Zurich, said that budget cuts and not taking advantage of available technologies are short-term, cost-saving solutions for potentially devastating long-term problems. According to Wildgoose, knowing where critical suppliers are, mapping out probabilities for extreme weather events and creating contingency plans can help companies avoid having too much value at risk in one location and recover more quickly if an event does occur.
“It surprises me, because it’s not too expensive to start to look at that. It’s a fairly inexpensive data source,” Wildgoose said.
In order to erase this risk of a “blind spot,” senior management needs to take a step back and evaluate how different social and environmental factors interact with their supply chains. Part of effective risk management is understanding the risks, their triggers and one’s exposure to them. Companies need to go through each value chain and ask themselves about the likelihood and potential impact of adverse events. Only then can they start taking actions to mitigate the probability of such events or reduce their impact.