- Climate change disruptions are disproportionately felt by small and medium-sized businesses.
- The transportation of products in the supply chain is becoming increasingly difficult due to restrictions brought about by weather.
- To better prepare for these types of disturbances, analyze the revenue impact of losing an individual supplier.
by Anand Swaroop
Distribution has gone through fundamental changes recently due to a multitude of unforeseen events. However, one strain on the supply chain is a slow-moving crisis that is going to last for decades to come, and there is actually a lot we can do to predict it. Prepare your business for supply chain disruptions.
Climate change disruptions are disproportionately felt by small and medium-sized businesses. Big corporations are able to overcome whether disruption costs, making “weathering the storm” a serious disadvantage for smaller businesses. These climate change related disruptions can be broken down into five buckets: weather, ecosystem, plant bioactivity, global logistics, and interdependency.
Disruptive weather events, such as hurricanes, tornadoes, flooding, heat waves, and wildfires all have caused the short-term wipeouts of multiple crops and have impacted factory scheduling due to power outages. In the U.S., climate-related disasters have cost more than 742.1 billion between 2017-2021. Local farmers and businesses are the most likely to feel these changes, with climate change affecting product availability, production, and quality.
Weather Disrupts Transportation
A different, yet equally challenging disruption due to weather related disturbances is transportation. The transportation of products in the supply chain is becoming increasingly difficult due to restrictions brought about by rising oceans. With almost 90 percent of the world’s freight moved by waterways and oceans, climate change can cause severe restriction of freshwater modes of transport.
Transportation has become necessary due to supply chains being more global in nature. Products are manufactured on one side of the world, and then shipped thousands of miles away for processing. The supply chain is an intricate web. Due to this interdependency, any supply chain disruption in one part of the globe has a direct effect on availability and the cost of goods. This is why climate change preparedness is essential to business operations of any size.
Define and Discuss Potential Disruptions
To mitigate the effects of climate change, we must take a proactive approach to operations to ensure the stability for the business. The starting point is understanding the depth and complexity of the entire industry. Businesses generally pay less attention to the robustness of their suppliers’ sources. Companies that proactively plan for what may affect their suppliers, can switch to alternative sources faster and optimize system-wide resources when disruption occurs.
With that comes the need to understand your supply chain in depth. Identify the sites that directly or indirectly support import, warehousing, distribution, and manufacturing with transportation via air, land, and sea. Invest in tools to help gather this data and make it more visible.
Each stakeholder in the supply chain faces their own risks. Local natural disasters, economic indices, geopolitical risk factors, proximity to suppliers and customers, access to stable energy sources, availability of natural resources, and long-term labor, among others. Assessing these risks is critical. Having a one-size-fits-all strategy to these challenges is impractical.
Assess, Plan, Invest
The effects of climate change on the supply chain are inevitable. Businesses operating on day-to-day operations might find budgeting for these added expenses difficult, if not impossible. Without proper planning, companies may find more costs in recovery from disruptions than in readiness.
To better prepare for these types of disturbances, analyze the revenue impact of losing an individual supplier. Make informed decisions about improving your chain, and plan to invest in critical resources.
Develop “mock recalls” for climate-related events. This will help prepare for different sourcing options to effectively manage climate risk. This can be as simple as laying out employee responsibility during disruption and planning for alternative suppliers. Try to create a climate-resilient supply chain that ensures not only the business continuity, but also competitive advantages.
Invest in new technologies like Artificial Intelligence (AI)-powered early-detection systems and associated expertise. These monitoring and predictive tools that collect information on emerging climate risks have become essential to running a globally dispersed supply chain.
Now is the time to enact change, and the government is willing to help. Small businesses who are making the switch to renewable energy in the U.S. are now able to earn investments and tax credits from the Inflation Reduction Act. If you are not sure where to start, check out the SME Climate Hub where small companies can learn about eliminating waste, cutting emissions, and minimizing energy usage to lower costs. Make the strategy for climate change preparedness an investment for the company’s future and profit.
Every inhabited region across the globe is affected by climate change, from big corporations, to local businesses, to consumers. The impacts go beyond the environmental effects, disrupting our everyday lives. All business owners play a role in the stability of the supply chain, so each link must be prepared for disruptions. We are only as strong as our weakest link and need to stay proactive in our strategy to ensure the longevity of our businesses and supply chain.
Anand Swaroop, Ph.D., is a biochemist, president and founder of the evidence-based nutritional ingredient supplier Cepham, and co-founder of Nutrify Today. He earned a Master of Science degree in biochemistry and a doctorate in chemistry from the University of Allahabad. In addition to being an entrepreneur and leader in the pharmaceutical and nutraceutical industries, Swaroop was selected as a Fellow of the American College of Nutrition in 2016.