Building Resilient Supply Chains in the Face of Climate Risk

The Impact of Climate Risk on Global Supply Chains

Considering how vital modern supply chains are, transporting essential goods across the globe, they remain extremely vulnerable to disruption. Many global supply chains have been primarily developed with efficiency in mind at the expense of resilience, creating a situation now where they are susceptible to be impacted by climate risk.

The World Economic Forum’s Global Risk Perception Survey 2021 demonstrates the importance of accounting for climate risk, with 52.7% of respondents believing that extreme weather events present a clear and present danger in the short term. Companies therefore need to think strategically about how best to manage these risks, generating supply chains that can withstand the extreme weather events associated with the climate emergency.

Just last month, the UK saw flooding triggered by Storm Christoph which not only caused property damage for residents and businesses alike, but also almost impacted the UK’s COVID-19 vaccine distribution supply chain–emergency services and on-site employees were forced to act quickly to ensure that facilities storing the vaccines weren’t flooded.

This example highlights the increasing importance of protecting supply chains since the start of the pandemic; throughout much of the past year, supply chains were pivotal in distributing PPE and moving forward they will play a key role in the administration of COVID-19 vaccines, helping countries recover. Ensuring these supply chains remain strong and fully functioning in the face of climate risk and the associated natural catastrophes is now a key task for all those concerned, whether business or government. 

Understand the risks and solutions relevant for your operations 

Businesses looking to fortify their supply chains against natural catastrophes must start by improving their knowledge about the specific risks relevant for them. It is vital that business leaders understand their organizations’ exposure level, as it is a lot easier to implement the right kind of investments in resilience–ones that will deliver the most cost-effective results–when they know which specific risks are present in the areas relevant for them. 

Often the most effective solutions are physical loss prevention measures that protect the integrity of a building: barriers protecting against hurricane damage; effective sprinkler systems; raised platforms to protect goods from possible flooding. One example of how effective these solutions can be comes from a spice manufacturing facility FM Global partnered with. The facility experienced two very similar floods roughly a year apart but with the key difference that when the second flood hit, the facility was storing key materials on raised platforms. This helped to prevent the company suffering around US$1million in damage.

Uncover who your key suppliers are

When organizations analyze the exposure level of their operations, it is vital that steps are taken to identify the suppliers they rely on, allowing business leaders to focus attention on where the greatest risks lie.

After uncovering their high priority suppliers, companies should concentrate on analyzing the climate risk each may face. Rigorous analysis using data-driven risk assessment tools can provide invaluable insights regarding which precise regions, sites, and business partners are vulnerable.

FM Global’s Resilience Index is one tool which can assist businesses with this process. The Index compares risk in nearly 130 countries, sharing data into a range of drivers which can impact supply chain resilience–factors such as natural hazard risk, quality of infrastructure, control of corruption, corporate governance and supply chain visibility. Business leaders can then use this information to identify potential “pinch points” in their supply chains, highlighting which countries may represent more resilient locations for potential suppliers.

On-site risk assessments can be vital

If organizations decide it is still important to work with suppliers who face a significant level of risk, on site risk assessments are crucial as they generate information on a suppliers’ climate risk level and preparedness. These consider local flood studies, location topography and suitability of construction, among other factors. Businesses may use this form of assessment to make a final call on whether they cut ties with a supplier or work with them to strengthen their resilience against climate risk.

Climate risk is clearly an incredibly unpredictable risk often causing natural catastrophes to hit with little warning. To combat this, businesses must plan for a resilient future, conducting a rigorous analysis of their priority suppliers, using data-driven tools and expert partners to understand which areas they should be prioritizing. This process will increase the chance that a supply chain can continue to deliver goods, regardless of a jeopardizing event like a major fire, flood, or hurricane.

How FM Global can help you

Related content:

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CEO/CFO Climate Risk Survey Results: How prepared are top firms?

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