Identifying Supply Chain Risks from Uncontrollable Climates
By: GreenBiz July 01, 2014
In 2010, massive flooding in Pakistan profoundly affected the country and disrupted supply chains globally, spiking international prices for cotton, rice and wheat. This was only one in a string of weather disasters - including heat waves, hurricanes and wildfires - that have affected supply chains on a large scale in the past decade.
Despite the enormous value at stake, climate risks in supply chains can be hard to see because they are so large. The key to getting it right, according to Acclimatise CEO John Firth, is for managers to address supply chain climate risks in terms of existing stressors — such as procurement costs, on-time delivery, water availability and secure energy and infrastructure.
The economic costs of climate-related disasters are rising, in large part because business is consolidating in vulnerable regions in the name of market growth and efficiency. It is projected that by 2070, seven of the 10 largest economic hubs will be in the developing world, and assets exposed to floods will rise from 5 percent to 9 percent of global GDP.
The good news is that most companies have processes in place to help managers think about economic and sociopolitical risks in emerging regions. Managers responsible for understanding local risk should consider how weather and environmental changes will create more stress on vulnerabilities they are already addressing, such as on the price and availability of crops, continuity of logistics and safety and security of operations.