Extreme weather such as floods, hurricanes, snow and unusually high or low temperatures was the 11th most frequent supply chain disruption in 2022 and with climate change high on the agenda this is an area to watch and focus some attention on.
Extreme weather events can have significant impacts on the supply chain. Here are some ways in which extreme weather can affect different aspects of the supply chain:
Disruption of transportation
Extreme weather events such as hurricanes, blizzards, or floods can disrupt transportation networks, including roads, railways, and ports. These disruptions can lead to delays or cancellations of shipments, affecting the movement of goods across the supply chain.
Damage to infrastructure
Severe weather conditions like storms, earthquakes, or tornadoes can cause damage to infrastructure such as warehouses, distribution centres and production facilities. This damage can halt or reduce production and distribution capabilities, leading to supply chain disruptions and possibly shortages.
This can impact operations in manufacturing facilities, distribution centres and even retail stores. Without electricity, machinery may be unable to function, and inventory tracking systems can be affected, leading to delays and inefficiencies.
Supply and demand imbalances
Extreme weather conditions can impact the availability of raw materials, commodities, or agricultural products. For example, droughts or floods can lead to crop failures, impacting the supply of food or other agricultural commodities. Similarly, natural disasters can damage oil refineries or disrupt mining operations, affecting the availability of raw materials. Such imbalances in supply and demand can cause price fluctuations and shortages throughout the supply chain.
Inventory management challenges
When extreme weather events are anticipated, companies may stock up on inventory as a precautionary measure. This can lead to excess inventory in certain locations, tying up capital and storage space. On the other hand, if severe weather disrupts transportation or production, inventory shortages can occur, leading to stockouts and delays in fulfilling customer orders.
Communication and coordination issues
During extreme weather conditions, communication systems can be disrupted, making it challenging for supply chain partners to coordinate effectively. This lack of communication can lead to delays in decision-making, difficulty in re-routing shipments, and challenges in adjusting production schedules or inventory levels.
To mitigate the impacts of extreme weather on the supply chain, companies need to enhance their supply chain visibility and ensure they have backup strategies such as diversifying suppliers, implementing risk management and business continuity plans, maintaining safety stock, investing in resilient infrastructure, and improving communication and collaboration with supply chain partners.
Assessing supply chain risk has always been an element of undertaking full network reviews. However, taking into account the many recent disruptions including Covid-19, businesses might want the option of considering a more specific focus on supply chain risk on its own.
Businesses need to take steps to ensure they protect future business performance. This can be achieved in two ways. First, by creating supply chain resilience and secondly, by building internal capability to manage future supply chain shocks. Your systems will be tested again so the key is being ready and absorbing the impact.
The objective is not just to mitigate the risk but to build a competitive advantage in reacting to it effectively.
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