Supply Chains in the Face of a Changing Climate

by | Apr 30, 2014

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coffee, joyce, nd-gainThe economic damages from weather-related disasters continue to climb worldwide, and will continue on that path. Proactively, organizations are making strides to anticipate and prepare for these climatic shifts.

Early April, Unilever CEO Paul Polman made a public statement calling for “decisive action to tackle climate change in order to secure the future of businesses and people around the world for years to come.” Unilever’s own response is a leading example of companywide sustainability plans, and includes a goal of sourcing 100 percent of its agricultural raw materials sustainably. Additionally, the National Hurricane Center announced its plans April 18 to issue separate storm surge watches and warnings—in addition to wind notices—beginning in 2015 to help communities better prepare for approaching storms, the Washington Post reported.

This new normal of increased weather-related risk and vulnerability is being faced by communities as well as multinational corporations dependent upon supply chain networks around the world.

As an example, extensive flooding in Thailand in 2011, badly damaged global parts suppliers for the automotive and electronic industries causing an estimated $15-20 billion in losses. This weather event hurt the bottom line of major multinational corporations around the globe, including Cisco, Dell, Ford, Honda, HP, Toyota and many others.

Honda’s losses totaled more than $250 million when flood waters inundated an auto assembly plant, and HP estimates that more than half of its seven percent revenue decline in the fourth quarter of 2011 reflected a shortage of hard disk drives caused by this Thai flooding. While no single storm can arguably be blamed on climate change, experts predict that the world will be wracked by more and more storm events like the Thai flood of 2011.

What tools can corporations employ to inform thinking about supply chains, especially as we enter an era when more companies are adding a climate-change dimension to strategic planning?

A supply-chain report from CDP, the global nonprofit that measures vital environmental information, indicates that 73 percent of executives surveyed now see physical risks from climate change disrupting their supply chain.

When assessing their global risks, corporate leaders can employ a full tool belt of indices to inform their thinking.  From Transparency International’s Corruption Perception Index, to the major credit-rating agencies’ foreign-currency ratings, and the World Economic Forum’s Global Competitiveness Report companies can better measure and evaluate decisions about supply-chain moves around the world.

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