Climate Change: Yet Another Source of Global Supply Chain Risk and Disruption
Supply Chain Disruption
In a series of blog articles, the Product/Solution Marketing team explores innovative solutions to guard against supply chain disruptions.
Companies in every industry are focusing on operating more sustainably and embracing environmental stewardship — and with good reason. Every day we’re reminded of the catastrophic effects of climate change. From raging wildfires in the Western U.S. to the recent devastating floods in Pakistan, we’re witnessing a series of natural and humanitarian crises unfold as a result of global warming.
Following on the heels of COVID-19, port closures, labor shortages and geopolitical conflict, climate change-related events are emerging as a significant source of supply chain disruption. This summer’s record-breaking heat wave in China has led to power shortages, factory shutdowns, dried-up shipping channels and ruined crops that have not only crippled that country’s economy — but also negatively impacted many of the world’s supply chains. With China’s 2021 annual trade volume exceeding $6 trillion — a record high — ongoing climate-related shutdowns there could result in significant product shortages for the rest of the planet.
Unfortunately, what we’re seeing in China may be only the beginning of a new era of supply chain disruption driven by climate change. Most of the world’s more than 2700 coastal ports are within 15 feet of sea level, making them vulnerable to both natural disasters in the short term and rising oceans over the longer term. Australia has experienced a 16% decline in yearly rainfall since 1970, threatening its agricultural industry and its long-term food security. In the U.S. alone, by 2030 the costs of climate-change related workplace disruptions are expected to exceed $2 billion.
While companies have become much more advanced in their supply chain management practices, resilience to climate change is often overlooked. A recent study focusing on the resilience of high tech, auto and CPG companies found that 80% of their production facilities in the U.S. have no alternative sites lined up, and no continuity plans, in the event of a climate-related disruption.
Awareness Is Power
Clearly, the longer-term solution must focus on adopting more sustainable business practices and working to reverse the effects of global warming. But how can companies optimize their resilience to climate change and related disruptions in the short term? The answer lies in seeing, and mitigating, the real risk posed to supply chains by extreme weather, grid shutdowns, flooded ports and other disruptive events.
By increasing their awareness of looming climate-change related events, businesses in every industry can identify optimal resolutions — such as using alternative transportation routes or suppliers — quickly, and sometimes even in advance of the actual event. By being prepared and aware, companies can create resilient supply chains that continue to serve customers, even as planning exceptions occur.
It may seem difficult, if not impossible, to quantitatively assess the risk of climate-related disruptions across geographically distributed supply chains that span multiple countries, thousands of miles and dozens of suppliers. But advanced technology places this capability within the reach of every organization, no matter how complex its global supply chain is.
Quantifying the Threat With Luminate Risk Manager
Enabled by artificial intelligence, advanced data science and predictive analytics, Luminate Risk Manager is built to gather near real-time data from across the supply chain — and leverage that data to identify both vulnerabilities and threats to continuous operation. A new capability for Luminate Control Tower, Risk Manager monitors supply chain conditions and assigns quantitative, weighted risk scores that reveal otherwise invisible weaknesses and susceptibilities.
The huge volume of internal and external data associated with the typical multinational supply chain is simply too much for the cognitive abilities of human planners. But Luminate Risk Manager, a robust solution delivered via a cloud model, is engineered to collect unstructured insights from across the complex supply network such as fires affecting suppliers, major weather events, and blocked shipping channels that could potentially impact inventory, in-transit raw material, and production. Luminate Risk Manger helps companies understand and calculate risk, providing not only insights but automation to proactively head off risk. Thanks to Blue Yonder’s close partnerships with industry-leading data aggregators, every organization can access and leverage a complete range of internal, external and third-party data to create a true representation of risk exposure along the end-to-end supply chain.
Advanced, AI-enabled decision engines in Luminate Risk Manager intelligently assign a numeric risk score to every supply chain node, positioning companies to clarify their emergency-response priorities and begin preparing for inevitable climate-related disruptions.
Addressing the Threat With Luminate Control Tower
After risks have been identified, organizations can apply the advanced capabilities of Luminate Control Tower (LCT) to plan a course of action that supports continuous operation and sustained customer satisfaction, while also minimizing the costs of resolution to the greatest extent possible.
For many disruptions, LCT can make AI-informed recommendations — such as adjusting production, inventory or transportation plans — to autonomously and seamlessly bring the supply chain back on track. For more complex climate-related challenges, stakeholders can gather in virtual situation rooms and run probabilistic scenarios to determine the best course of action. This balance between autonomous and human decision-making ensures that companies are maximizing their planning time and talents, which is especially important in light of current supply chain labor shortages.
Climate-Related Risk: An Unfortunate Business Reality
Armed with information about the long-term effects of global warming, today’s supply chains are operating with a greater awareness of sustainable practices and environmental impacts. There’s no way to completely reverse climate change, but it’s inspiring to see how education and knowledge are bringing about positive change.
To combat the short-term effects of climate change on their supply chains, companies need to have a similar level of awareness. They need to identify sources of vulnerability in their supply chains — nodes where a climate-related event could interfere with procurement, production or transportation plans — and act to fortify the network against these disruptions. By working proactively to create resilience, companies can optimize their outcomes when faced with the unfortunate reality of ongoing climate-change related events.