The global supply chain operates in a volatile ecosystem, and it’s susceptible to disruptions, changes, and challenges. While economic fluctuations are common and well-known, many other factors influence the way the supply chain functions. One example is climate change. The impacts of climate change on the global supply chain are numerous, and in recent years, we’ve seen significant disruptions and losses from floods, droughts, wildfires, and regulatory changes.
As our planet faces unprecedented challenges from climate change such as severe weather, resource depletion, and regulatory shifts, the traditional notions of supply chain management are being reshaped. Environmental factors influence every supply chain stage, from sourcing raw materials to product distribution.
Because of this, all businesses in the supply chain need to understand how climate change, resource scarcity, and environmental regulations are posing new challenges and requirements. Businesses also need to adopt proactive measures to build resilience, ensure sustainability, and deploy innovative solutions to address the impacts of climate change.
Here’s everything you need to know about climate change’s impact on supply chain businesses, and how your organization can build resilience.
How Climate Change Affects the Supply Chain
To understand how climate change is impacting the supply chain, we need to discuss what climate change is. The term “climate change” refers to “long-term shifts in temperatures and weather patterns,” from both natural and human-caused activities. While natural causes of climate change can come from things such as volcanic eruptions, scientists have been documenting how “human activities have been the main driver of climate change” for the past 200 years.
Researchers have split the impacts of climate change on the supply chain into three categories:
- Transition risks: These develop as policies and markets “transition to a lower-carbon economy,” and include the economic impacts of changing emissions sources.
- Physical risks: These can be acute or longer-term and include weather-related risks such as floods, wildfires, and rising average temperatures.
- Climate change opportunities: This occurs when consumer preferences shift as “new markets open for products.” An example of this is the shift to electric vehicles and subsequently, how infrastructure needs change.
We’ve also seen many recent examples of how climate change can quickly devastate parts of the supply chain. Here are just a few examples:
- A major freeze in Texas in 2021 forced semiconductor plants to close, exacerbating a global shortage.
- Heavy rain and snowmelt in 2021 caused the banks of a European river to burst, halting river shipments for days.
- Flooding in China in 2022 “disrupted supply chains for commodities such as coal, pigs, and peanuts” and forced the temporary closure of an automobile plant.
The supply chain is susceptible to the impacts of climate change. Minimizing the climate change impact on supply chain businesses is essential for organizations that want to be as resilient and as profitable as possible.
Strategies for Mitigation and Adaptation
To navigate the climate change impact on supply chains, organizations can take steps to build resilience and adapt.
With that in mind, here are some strategies to deploy in your organization:
1. Diversify supplies and geographic locations
Diversifying supplies and geographic locations is critical for reducing dependency on individual vendors and locales, and eliminating impacts of single-point failures. For example, if one location is impacted by a disruption, you can still rely on others to keep the supply chain functioning. What are some examples of localized climate change-related events? Floods, fires, and trade regulations can impact a certain region.
2. Build in redundancies
Building redundancies into your supply chain acts as an insurance policy against disruptions, strengthening resilience in several ways. Redundancies refer to having backup options for things such as suppliers, transportation, and even processes, to minimize downtown and keep things moving if disruptions do occur. For example, if a storm blocks your usual shipping route or impacts your primary supplier, you can quickly shift shipments to your backup option.
3. Adopt sustainable practices
Adopting sustainable practices offers a multi-pronged approach to building resilience against the impacts of climate change on the supply chain. First, sustainable practices such as water conservation and resource-efficient production can make companies less vulnerable to shortages and price hikes. Likewise, improving waste generation and pollution output can not only benefit the environment but also make organizations more prepared to navigate regulatory changes.
Also, keep in mind that consumers are increasingly drawn to brands that are prioritizing sustainability, with 77% of American shoppers reporting they are concerned about the environmental impact of the brands they buy. Investing in sustainable practices demonstrates a commitment to environmental responsibility, strengthening brand reputation and potentially attracting a wider customer base
4. Invest in advanced technology to improve supply chain visibility
Real-time supply chain visibility is crucial for navigating disruptions caused by climate change. These technologies and applications include:
- Real-time tracking and monitoring: Advanced inventory and warehouse technology allow organizations to track the location and status of goods in real-time.
- Predictive analytics: By using demand forecasting, organizations can predict potential disruptions and take proactive measures. Today’s algorithms can analyze historical data, while also accounting for unpredictable events, such as extreme weather patterns.
- Improved communication and collaboration: Technology platforms facilitate seamless communication and collaboration between different stakeholders. Democratizing inventory visibility allows for speedy decision-making, and coordinated responses to disruptions and challenges.
Investing in advanced technologies to improve supply chain visibility allows companies to get a clear picture of their operations, and react effectively to climate-related challenges. This translates to a more agile and adaptable supply chain.
5. Improve collaboration with vendors and stakeholders
Effective collaboration with stakeholders across the supply chain allows organizations to deploy innovative solutions and strategies. By engaging with suppliers, manufacturers, and distributors, organizations can collectively problem-solve and identify areas for improvement. Regular communication between companies and their partners allows for early identification of potential climate-related threats, such as resource scarcity and infrastructure vulnerabilities. Also, organizations can work together to develop coordinated responses for when disruptions occur, such as alternative suppliers, transportation routes, or production adjustments.
6. Practice accurate ordering
Ordering the right amount of inventory is integral for building resilience in the wake of climate change. For example, using accurate demand forecasting and inventory analysis allows organizations to reduce scenarios of overstocking (which can tie up warehouse space) and understocking (which can lead to stockouts, long lead times, and lost revenue). These situations can become even more precarious during climate change-related events. For example, if a hurricane halts production, but you already have the appropriate amount of inventory on hand, your customers won’t experience delays.
7. Deploy climate-smart infrastructure
Transportation networks, ports, warehouses, and energy grids are often ill-equipped to handle the increasing frequency and intensity of extreme weather events triggered by climate change. Climate-smart infrastructure goes beyond simply repairing existing structures. It involves strategically designing, building, and maintaining infrastructure that can withstand extreme weather and is sustainable. Consider upgrading your physical infrastructure, fortifying ports and warehouses, and designing warehouses with energy-efficient features, so that your business is prepared for extreme weather and other climate change-related events.
Weather the Impacts of Climate Change with StockIQ
Climate change is impacting the supply chain, there’s no doubt about it. Instead of being caught unprepared, organizations can take steps to improve visibility and resilience, and to adapt to new scenarios. For this, you can turn to StockIQ. StockIQ is user-friendly supply chain management software that allows you to control inventory, simplify ordering, and improve forecasting. Contact us today to get started with StockIQ.
