Minimizing Supply Chain Losses From Climate Change
If the COVID-19 pandemic has proved anything, it’s that supply chains are delicate. Unexpected circumstances can cause widespread disruptions throughout the system and all its connected businesses. This disruption-prone nature is particularly concerning considering the growing threat of climate change.
Supply chains and the climate are more intricately linked than many may realize. Just eight global supply chains are responsible for more than 50% of greenhouse gas emissions. As temperatures rise and extreme weather becomes more common, the environment also impacts the supply chain.
How Climate Change Leads to Supply Chain Losses
Climate change can cause substantial losses throughout the supply chain. One of the most prevalent ways this happens is by reducing the availability of raw materials and resources. For example, oceanic temperature rises of just a few degrees can make it harder for fish to reproduce, reducing seafood production.
As natural resources dwindle, supply chains will face difficulty finding sufficient sources for various industries. Manufacturers that rely on single, centralized sources for these items may not be able to get enough to meet demand. As a result, they could face lengthy delays and lost business.
Extreme weather events, which become more common with worsening climate change, will complicate things further. Hurricanes, flooding, wildfires and the like can damage facilities or make transportation unsafe. In a best-case scenario, trucks, planes and ships will have to wait until the weather clears, causing costly delays. Extreme weather may sometimes cause traffic accidents, leading to product loss and endangering workers.
These storms and other weather events also cause physical damage to manufacturing facilities. Just recently, a tornado flattened an entire candle factory in Kentucky. As climate change worsens and these events become more common, factories could face substantial destruction and, more concerningly, loss of workers’ lives.
Warming temperatures will also reduce worker productivity. Many manufacturing facilities aren’t climate-controlled in areas like China, and higher temperatures could significantly impact the workforce. In some cases, it could even cause heat-related illness.
Climate change will impact manufacturing workforces further by displacing workers. Coastal cities will become less habitable due to rising sea levels and extreme weather events. Many people will move when this happens, reducing the number of employees for manufacturers in these areas.
How to Minimize Losses From Climate Change
Climate change-related losses are too substantial to ignore. They’re not just hypothetical, either — they’ve already started to take shape. For example, wildfires in Canada, which accounts for roughly one-quarter of the U.S. lumber supply, caused substantial disruptions in the timber supply chain.
Thankfully, as pressing as these issues are, supply chain organizations can take steps to mitigate them. Quick, decisive action can slow and eventually stop climate change and minimize short-term damage.
Here are five ways supply chains can minimize their losses from climate change.
1. Move Away From Fossil Fuels
The most important thing supply chains can do in light of these risks is reduce their environmental footprint. Decarbonizing will help fight climate change, preventing more extreme threats in the future.
Considering 29% of greenhouse gas emissions come from transportation, adopting green transport solutions is essential to decarbonization. Electric long-haul trucks are becoming a more viable option each day, and investing in these projects can help attain more efficient options sooner. Electric ships and airplanes could follow soon after.
Supply chains should also minimize energy consumption in warehouses and other facilities. Renewable power is already a viable replacement for fossil fuels in many areas, so this transition can happen with minimal disruption. Renewables also give these facilities independence from the grid, saving supply chains money in the long run.
2. Embrace Distributed Sourcing
Supply chains must do all they can to lessen climate change, but these results will be slow. Climate-related risks will still be relevant threats for a while, so short-term defenses are also necessary. One important step is to move away from the lean principle of single sourcing.
If supply chains rely on a single source for materials, extreme weather or warming temperatures will have a more significant impact. A storm-damaged facility or unexpectedly low crop yield would cause supply shortages and delays. However, if supply chains could make up for those losses by sourcing from other areas, these setbacks wouldn’t be as impactful.
The key here is to ensure some sources are in areas less heavily affected by climate change. Coastal regions will likely see some of the most disruption, so supply chains should distribute their sourcing across nations, not just along the coasts.
3. Fortify Infrastructure Against Natural Disasters
Supply chains can further minimize climate-related disruptions by investing in weather-resilient physical infrastructure. Organizations should determine which risks their facilities face as extreme weather becomes more common. For some, flooding may be the most pressing threat, while fires are more likely for others.
After determining what risks they face, facilities should fortify their infrastructure against them. Sea walls, waterproofing, raised inventory racks and early alert systems can help defend against flooding and hurricanes. Fireproofing, tighter electrical security and extensive sprinkler systems may be more applicable if warehouses face wildfire risks.
On average, disaster-proofing a facility costs just 2% of the building costs, while related damage would cost far more. Supply chains should not overlook this step.
4. Coordinate Group Efforts for Sustainability
Since supply chains are such complex, interconnected networks, resiliency takes more than one company’s efforts. Logistics businesses must encourage their partners and third parties to join them in ensuring sustainability.
Part of this involves sourcing from manufacturers with disaster-proof infrastructure in place. Just as supply chains’ facilities should have defenses against extreme weather events, so should their production partners. The same goes for decarbonization.
Financial incentives can be powerful motivators for encouraging group sustainability efforts. For example, Walmart committed to buying 70% of its goods sold in the U.S. from suppliers participating in the sustainability index. Actions like this will drive more cohesive, cross-industry action.
5. Invest in Broader Climate Resilience
Finally, supply chains should invest in anti-climate change action outside of their operations and industry. In some areas, that may look like funding resilient infrastructure like seawalls or early wildfire warning systems. In others, it may be lobbying for broader climate action from local governments.
While the supply chain plays a large role in climate change, it doesn’t bear the sole responsibility. It will take broader action to mitigate it, so organizations should lead others in the charge for sustainability.
Lobbying can be an effective tool for pushing legislation toward sustainable action. Whether that looks like incentivizing companies to embrace green technologies or supporting sustainable infrastructure, it’s an important effort. These actions may not reap short-term rewards, but they’ll help stave off future, more severe disruptions.
Climate Change Is a Real Threat to Supply Chains
Climate change will wreak havoc on the world’s supply chains if left unchecked. Logistics networks should understand these risks and take appropriate action to protect the planet and mitigate short-term risks. Without addressing these issues, supply chains will face increasingly challenging scenarios outside of their control.
Climate change is a complicated issue, and as such, no one method will solve it. However, following these five steps can help supply chains play their part in fighting it and minimizing related losses.
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