SupplyChainBrain, March 18, 2024

When it comes to assessing the many risks to supply chains, planners generally don’t place natural disasters at the top of the list. But with the growing number of extreme weather events affecting the movement of goods worldwide, that could change in the coming years.

Foremost on the minds of supply chain risk managers are events such as factory fires, vendor bankruptcies, labor disruptions, cyberattacks and the impact of mergers and acquisitions on suppliers, says Jim Wetekamp, chief executive officer of Riskonnect.

Yet companies can’t afford to ignore the wave of weather events, many the result of climate change, that have occurred in recent years. According to the National Centers for Environmental Information, part of the National Oceanic and Atmospheric Administration, 2023 was a historic year in the number and severity of natural disasters to strike the U.S. NCEI counted 28 events costing a minimum of $1 billion apiece, surpassing the previous record of 22 in 2020, and racking up a total price tag of at least $92.9 billion. (The final number is likely to be even higher, once the cost of flooding along the East Coast in December is factored in.)

Total losses from natural disasters globally in 2023 reached $250 billion, with less than half that amount insured. And the outlook for 2024 and beyond is even more dire, if recent patterns continue.

What’s troubling businesses is the anomalous nature of many recent weather extremes: hotter weather showing up in colder climes, and vice versa. “The traditional hottest points along the equator are now spreading up and down,” Wetekamp notes. Meanwhile, there were snowstorms in Texas.

Companies seeking to manage weather risk have to adopt two distinct mindsets: short-term and long. In the case of the former, they must have on hand a detailed contingency plan for dealing with the crisis of the moment. Typically that consists of a “playbook” that assigns roles to key managers in the event of an emergency, and designates temporary alternative sources of supply should access to major vendors be cut off.

The problem with such plans is that they quickly become obsolete, as supply strategies evolve in line with changing markets and economies. But Wetekamp says companies today are doing a better job of crafting business continuity plans that conform to the existing landscape, widening their perspective to include the full range of supply chain partners and customers. “They’ve gotten smarter and better on mapping outside the four walls, forward and backward,” he says.

Read the full article in SupplyChainBrain. >>