Supply Chains in the Face of a Changing Climate

Author: Joyce Coffee

The 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 ofsourcing 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.

The Notre Dame Global Adaptation Index is the latest tool that supply-chain managers can call upon when confronting this new strategic planning landscape.

PepsiCo—which relies on agriculture as do the growers and communities where the global food-and-beverage company operates—uses the ND-GAIN.

“To improve the resilience of our supply chains across the world, we need sound, scientific data and tools such as the Notre Dame Global Adaptation Index, which is critically important in researching a country’s vulnerability to global climate risks,” maintains Dan Bena, PepsiCo Senior Director of Sustainable Development.

ND-GAIN is an index that illuminates which countries are best prepared to deal with climate disruption. The Index seeks to unlock global adaptation solutions in the corporate and development community that save lives and improve livelihoods while strengthening market positions.  It informs strategic, operational and reputational decisions regarding supply chains, capital projects and community engagements.

Using 17 years of data, ND-GAIN ranks more than 170 countries annually based on how vulnerable they are to droughts, super storms and other natural disasters. It also captures how ready they are to employ adaptation solutions. The Index, formerly housed at the Global Adaptation Institute in Washington, D.C., moved to the University of Notre Dame in April.

Nancy Gillis, Senior Manager of Climate Change and Sustainability Services, at EY, notes those national governments that are looking at opportunities to stimulate economic development want to be more attractive to large companies and look for ways to shore up vulnerabilities.

“There is a lot of focus on energy, transportation and other infrastructure investments.  ND-GAIN helps point out relative strengths and weaknesses and gives governments and corporations a lot of information to consider partnerships that ensure a corporate license to operate.” Forward-thinking corporations are incorporating extreme-event planning into their business-continuity preparations to reflect our climate-changed future.

What’s clear is that each new catastrophic storm event will bring new calls to action for more data to help inform the private sector on how best to prepare for—or better yet prevent—supply chain disruptions when the “next” storm comes along. We have entered a new era where adaptive management of climate risks will play an increasingly important role in board rooms and C-suite offices across the globe—particularly for multinationals with extensive supply chains exposure in the most vulnerable places.

Joyce Coffee is managing director of the Notre Dame Global Adaptation Index (ND-GAIN). Coffee, who is based in Chicago, serves as the executive lead for related resiliency research, outreach and execution.