Extreme weather poses an escalating threat to global supply chain health. Frequent port closures and travel disruptions have made it challenging for suppliers to fulfill their service level agreements. Just this year, floods in China’s northern province temporarily disrupted global commerce, causing more than $10 billion in losses. Consumer-facing delays such as this are becoming increasingly common — and more expensive. 

Extreme weather, though unpredictable on a case-by-case basis, is becoming a guarantee in the abstract. Leaders must take decisive steps to proactively mitigate the impacts of climate change.

When supply chains suffer, the impact is felt across the entire global business and consumer landscape. Production inter-dependencies mean that a single climate event can create parts shortages for an entire product line, stalling production and delivery timelines by weeks, if not months.

Depending on the severity of the disruption, procurement teams may incur longer-term ramifications, including productivity losses from workforce displacement. According to the United Nations, climate-related productivity losses will exceed $2 trillion by 2030, and environmental risks in the supply chain could cost organizations $120 billion by 2026.

Many leaders attempt to recoup climate-related procurement losses by raising prices for consumers. This strategy is risky. Rampant inflation over the last two years has raised consumers’ hackles. If customers perceive predatory pricing, their spending intentions decrease, making them far less likely to purchase goods and services from the offending retailer.

Drafting a Plan

In short, climate disruptions have extreme consequences for the whole enterprise. Yet many organizations still haven’t drafted an appropriately far-reaching risk-mitigation plan.

According to the Harvard Business Review, only 30% of supply chain sites in the U.S., China and Taiwan are capable of pivoting to an alternative site in fewer than 10 weeks. And just 11% are fully prepared for climate disruptions.

So what constitutes a “climate-ready” site? Climate preparedness require the following:

• Transparency in your supply chain. Leaders must have visibility into their second- and third-tier suppliers, not just direct ones. They can accomplish this with accurate supplier data, including information about a supplier’s stock, operating status and certificates. Additionally, leaders must facilitate conversations with their suppliers, to enact effective mitigation plans and other strategies for climate resilience. Influence with suppliers is powerful in other ways, too — for one, it invites more advantageous contract negotiations.
• Risk awareness and mitigation strategies. Risk can mean many different things. Are suppliers contracting with sanctioned downstream partners? Are they taking necessary precautions to protect against data leakage? These are extremely valuable questions, and leaders should know the answers to each, for every supplier. To protect against climate risk, they must understand their suppliers’ approach to risk mitigation and business continuity. Do they have access to natural resources? What is their labor strategy? In other words: How climate-resilient are they?
• Disaster mapping and predictive analytics. Every enterprise faces a unique set of climate challenges. Accordingly, leaders must familiarize themselves with their climate risk and understand how certain disasters may harm operations based on factors like location, strategy and scale. Leaders interested in reducing the impacts of any one disaster should consider diversifying their suppliers’ locations. By contracting with a geographically diverse set of partners, they ensure that extreme weather never eliminates all potential supply chain hubs.
• Investment in a business continuity plan. The U.S. government defines climate resilience as the ability to adapt, prepare and withstand natural disasters — as well as “recover rapidly” from them. Leaders must strategize on how they’ll respond to common climate scenarios. For context, MIT researchers suggest that organizations draft a climate risk-mitigation horizon of about 20 years.

The Path Forward

Organizations can’t avoid the effects of climate change, but they can prepare for its impact on the supply chain by ensuring agile operations. The key to agility is knowledge: knowing your suppliers, their business model and status, and the potential ramifications of extreme weather.

Furthermore, leaders must understand the environmental, social and governance (ESG) regulations they’re beholden to. Recent regulations in the EU and Germany, for example, require organizations to uphold sustainable operations and report their actions related to risk procedures and preventive measures. Violators face sanctions, compliance orders and fines of up to 2% of annual revenue. In this environment, the ability to identify compliant suppliers by product and certification is imperative.

As leaders vet their sustainability and climate resilience strategies, they should consider the following options:

• Risk analytics services. Threat mapping, modeling and predictive analytics can help leaders proactively strategize around climate events. Advanced weather forecasting provides disaster awareness, enabling leaders to proactively identify alternative suppliers with more time to spare. Similarly, organizational data analytics can identify which supply chain hubs are most important to business operations, cluing leaders in on where to invest additional resources.
• Supplier data management. High-quality supplier data isn’t a luxury — it’s an organizational imperative. Technology solutions like supplier data platforms (SDPs), which use artificial intelligence to collect, validate and distribute supplier information, provide the most accurate and comprehensive supplier data foundation, with coverage across data lakes, existing applications, tools and systems. With an SDP, procurement teams can access data that enables alternative supplier identification in a crisis. They also receive superior visibility into essential qualifications like a supplier’s ESG certifications and risk profiles.
• IoT-enabled monitoring systems. To prevent part destruction or spoilage, leaders can adopt internet of things solutions that ensure the integrity of their inventory. For example, using remote temperature monitoring, they can ensure that sensitive foodstuffs and other goods (such as medically necessary instruments and tests) remain safe during transport, even during a climate emergency.

These options benefit all enterprises, but there’s no silver bullet for avoiding extreme weather-related disruptions. Leaders must assess their organization’s needs based on multiple factors, including industry, geographic location and expansion plans.

As leaders, we all face the same problem: Climate change is intensifying, forcing operations to become more proactive. We must prioritize transparency, predictive risk analytics, robust business continuity planning, and advanced monitoring technologies to meet this challenge.

I challenge leaders to make 2024 the year of climate resilience.

Stephany Lapierre is the founder and chief executive officer of Tealbook.