Heatwaves disrupt supply chains, and companies may find themselves unable to relieve the disruption. What we saw last week across Europe was not an anomaly. Heatwaves will continue to become more regular and dangerous as the continuing effects of climate change become more apparent and undeniable.
Extreme weather causes disruption across the global supply chain, from agricultural capabilities to changes in consumer behaviour. In 2010, Russia suffered a severe heatwave. The resulting losses were US$15bn as drought and wildfires destroyed crops, particularly wheat. The effect was export restrictions on Russian wheat, contributing to global price increases. Recently, the USA saw wildfires, heatwaves, droughts, flooding, and storms. This caused supply chain disruption on a massive scale, from demand to transport. Weather is difficult to predict but understanding scenarios can make businesses more resilient.
Forecasting heatwaves and extreme weather to protect supply chains
Sophisticated technology can now forecast weather to a high degree of reliability. We are more able than ever before to use regional and local weather forecasts to make informed business decisions. Companies are even employing weather analysts to assess the effects on their supply chains.
However, the Met Office found in 2015, as part of a study, that at least a third of businesses were not using weather data in their supply chains. Of those companies who did use it, that same study found that 62% reported better relations with their customers, 57% reported improvements in their sales forecasts, 51% reported greater material availability, and 43% reported a reduction in waste. Although more companies might have moved towards considering weather data in their supply chains since then, we were not able to find more recent published data. Raw material buying, production scheduling, distribution and labour availability all connect to weather patterns.
In 2016, H&M reported 9% profit reduction when a US heatwave led to low demand for autumn and winter clothes. They could not respond because 80% of their suppliers were in Asia, meaning long lead times. Retailers sourcing products in the USA, Europe and North Africa can be more flexible. Responsiveness becomes crucial when weather subverts expectations. In Australia, when spring came late, retailers cut prices on unsuitable stock. Heatwaves affect roads and railways too. When it persists, concrete expands and tarmac melts. Recently, the surface broke up on four highway lanes in California, creating a danger for heavy goods vehicles.
Temperature monitoring in pharmaceutical supply chains
The temperature integrity of the supply chain is vital in the manufacture and transportation of pharmaceuticals. If the supply chain breaks, the products become useless. Certain vaccines need to stay at a constant temperature of between +2°C and +8°C. This is a logistical challenge when dispatching or cross-docking these goods. Failure can be expensive. A goods shipment from Europe to Africa may endanger a vaccine shipment with temperatures from -4ᐤC to +25ᐤC during its journey. Such fluctuations in temperature are a risk for pharmaceutical shipments. Constant temperature monitoring is necessary to keep supply chain product integrity.
Climate change and supply chain risk
Hotter than usual days and heatwaves that last for multiple days are a natural part of seasonal cycles. As Earth’s temperature rises, however, these periods become more common, and heatwaves will grow more regular and more extreme, continuing to disrupt businesses and lives. Climate change is already influencing supply chain risk. We know that global temperatures are rising and insurance claims due to extreme weather have increased. Companies that understand climate change and that their business continuity is in danger are looking for innovative ways to mitigate the risks. Innovations such as improved packaging, using more efficient, cleaner energy and reducing waste can make a company more competitive amidst uncertain times.
Seasonal cycles will continue changing and the rate and speed at which this happens will increase in the coming years. The most important thing that companies can do to prepare for this sort of supply chain disruption is recognise that this is only going to become more of an issue and that it requires new solutions and technology to combat it.
To discuss your supply chain management strategy and understand how our range of innovative solutions can make your supply chain more resilient, contact us.