What are some of the worst risk scenarios for your supply chain? A brand-damaging product recall? A cybersecurity breach? Major equipment failure? Most risk scenarios can be avoided or at least mitigated. But then you have the weather. Try as we might, we cannot control it. Today’s forecasting technology produces relatively accurate estimates of weather conditions, storm paths and precipitation amounts, but it cannot yet track weather disasters down to the minutest levels in order to help companies determine if they need to initiate their emergency preparedness plans.
Regardless of predictions, the effects of weather disasters — tropical storms and hurricanes, earthquakes, tornados, flooding and severe storms, blizzards and extreme cold, and prolonged droughts — can range from minor inconveniences to major disruptions. Facilities lose power, roadway blockages prevent distribution activities, and major damage causes months-long shutdowns.
According to the National Centers for Environmental Information, tropical cyclones and hurricanes cause a majority of damage and deaths in the United States. This is because they generally cover a wide geographical area. Severe storms, primarily tornados, are the most frequent major natural disaster, but cause less damage and fewer deaths because they tend to cover smaller areas. Droughts and winter storms seem to cause a disproportionate number of deaths, possibly because they span a longer period of time. In addition, droughts often are accompanied by heat waves, and winter storms often bring subfreezing temperatures.
These statistics capture the overall cost of major weather disasters. However, few studies review the specific costs for affected supply chains. And they can be substantial because so many areas of supply chains are affected. Here are just a few examples:
- Loss of power typically is one of the first and most common effects of a storm. Even during relatively minor storms, it’s not uncommon for a tree to fall on power lines. Although short power losses are minor inconveniences in the grand scheme of things, ongoing outages can bring operations to a standstill, if emergency generators are not in use. Small businesses in particular may never recover from the loss of business continuity.
- Transportation will certainly at least slow during storms. After, damaged bridges, flooded or snow- and ice-covered roads, freezing temperatures at airports, and more can stall the movement of goods for prolonged periods. In turn, perishable items may need to be discarded if they are not brought to market in time.
- In cases of facility damage, production equipment, raw materials and finished goods could all be affected. As a result, companies may miss order deadlines and sales opportunities and incur repair costs. In the agricultural industry, blizzards, snow, frost, floods, high winds, storms and drought can completely destroy a year’s crop or sicken or kill herds of livestock. This essentially wipes out the farmer’s profit opportunities for the year and can create material or food shortages for customers and consumers.
- Employees are affected too. If roads are blocked, they can’t commute to or from work. Some workers may have damage to their own homes and need time to recover. In cases of lengthy shutdowns, employees may be stuck without pay.
Risk management lessons
The silver lining is that natural disasters present valuable learning opportunities to make supply chains more robust and prepared for a variety of risks. For example, in March 2011, an 8.9-magnitude earthquake struck the northeast coast of Japan. This was followed by a tsunami that destroyed thousands of homes and tons of infrastructure, such as roads and dams. The death toll exceeded 86,000, and 550,000 people had to evacuate the region. A subsequent nuclear meltdown in Fukushima compounded all of this damage.
This disaster resulted in costs of $210 billion for Japan and its supply networks. Because of parts shortages from the affected area, Toyota, General Motors and Nissan had to temporarily shut down final assembly in both the United States and Japan (Carey 2018). Japan also is a source of a number of electronic components, such as copper foils for printed circuit boards, silicon wafers to make chips and resin to package them. As production ground to a halt, customers scrambled to find alternatives or limit their output.
A comprehensive study of four affected companies highlighted a greater need for supply chain design information and portability of those designs (Park, Hong and Roh 2013).
Experts who have studied trends in natural disaster effects on supply chains, including Grabel (2018); Park, Hong and Roh (2013); Kochar (2018); Parker (2019); and Duckworth (2019), offer these risk mitigation tips: First, develop total supply chain visibility. It is only logical that supply chain managers must know who their suppliers are in order to evaluate the risks from natural disasters. Most companies know their tier-one suppliers, but fewer know the businesses at tiers 2 and 3. Duckworth (2019) recommends using supply chain control towers to extend supply chain visibility through advanced analytics, real-time collaboration and sophisticated optimization. However, he cautions that many control towers do not reach their full potential because they are built on antiquated foundations.
Next, develop plans for preparation, mediation, recovery and redesign. It always is desirable to have action plans ready for emergency situations. A good plan can usually pay for the cost of developing it.
Incorporate weather forecasts into risk management plans. A recent report from the Met Office found that half of U.K. companies cite weather as one of the top three factors external to their businesses that drive consumer demand, but one-third of these companies do not use meteorological data in their supply chains (Buntrock 2019). Catastrophic events, occurrences of severe weather and year-over-year changes in weather pose various degrees of risk for companies and their supply chains. These risks range from severe, prolonged supply chain disruptions, to critical stockouts, to escalating costs due to last-minute implementation of the emergency procedures. When these risks come to fruition, the financial impacts can easily reach millions of dollars or more. As a result, preparedness should include the ability to sense, capture and analyze weather data and turn it into actionable insights.
Identify critical components or finished items. Then, determine critical suppliers and the level of risk for these partners. A number of agencies have developed maps to show disaster-prone areas.
Next, select and train a disaster response team. Its members should be knowledgeable and versatile because they will have to deal with unique situations. No matter how many hurricanes they have already encountered, the next one will be at least slightly different.
Develop an early-warning communication system and check on your own facilities as well as your supply chain partners. A global study of chief information officers by Gartner found that nearly 80% of corporations are not checking their supply sites for exposure to natural catastrophe risks, leaving them vulnerable to disruptions (Burnson 2017). Finally, build redundancy into your supply chain. Most companies work to develop tightly coupled supply chains that can deliver products faster and change quickly as customers look for new and improved versions. However, the more tightly coupled a supply chain is, the more susceptible it is to disruptions. C.H. Robinson (2016) points out that disasters used to be felt chiefly by companies in an affected region. Now, with global supply chains, an issue in one area can have far-reaching impacts.
Weather trends are showing that natural disasters will likely worsen as climate change takes it course. Be ready and resilient to keep your global supply chain moving in the wind, rain and sun.
1. Buntrock, C. 2019. “Weather: The greatest risk?” Logistics and Transport Focus 21, no. 2: 36.
2. Burnson, P. 2017. “No shortcuts to security.” Supply Chain Management Review 21, no. 6: 42-45.
3. Carey, Helen. 2018. “The Impact of Natural Disasters on Economy and Supply Chain — and How to Prepare for the Worst.” Thomas Insights, September 26. https://www.thomasnet.com/insights/how-natural-disasters-affect-the-supply-chain-and-how-to-prepare-for-the-worst/.
4. H. Robinson. 2016. “Add Resilience to Supply Chains.” Supply Chain 24/7. https://www.supplychain247.com/paper/add_resilence_to_supply_chains/c.h.robinson.
5. Duckworth, Nigel. 2019. “What Every Executive Needs to Know about Control Towers in Supply Chain Management.” One Network Enterprises. http://www.onenetwork.com.
6. Grabel, Lowell. 2018. “Is Your Supply Chain Ready for the Next Disaster?” APICS magazine, April. http://www.apics.org/apics-for-individuals/apics-magazine-home/magazine-detail-page/2018/04/21/prepare-supply-chain-natural-disaster.
7. Kochar, A. 2018. “Is your supply chain prepared for disaster?” Supply Chain Management Review 22, no. 6: 48-49.
8. NOAA National Centers for Environmental Information. 2019. “Billion-Dollar Weather and Climate Disasters: Table of Events.” National Oceanic and Atmospheric Administration. Accessed July 18, 2019. https://www.ncdc.noaa.gov/billions/events.
9. Park Y., P. Hong and J.J. Roh. 2013. “Supply chain lessons from the catastrophic natural disaster in Japan.” Business Horizons 56, no. 1: 75.
10. Parker, G. 2019. “How the supply chain can thrive in the face of natural disasters.” Material Handling & Logistics.
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