Resilience in global supply chains
When companies think about the resilience of their business to extreme weather events or natural disasters such as earthquakes or tsunamis, they tend to focus on their own physical and human assets or IT systems. But what if something happened to the companies you rely on to run your business?
We live in an increasingly interdependent world. As a result, we all need to think about extending our business continuity plans to also take the resilience of our global supply chains into account. For example, in 2011 severe flooding in Thailand shut down one of the world’s major hard drive component manufacturers. The resulting global shortage of hard drives cost one computer manufacturer hundreds of millions of dollars in sales, led to another temporarily laying off 10,000 workers, and pushed up global hard drive prices by over five dollars.
Therefore, as part of our work with the World Business Council for Sustainable Development (WBCSD), DNV GL has been working on a research project focusing on the resilience of global supply chains. A joint initiative with ERM, Coca-Cola, DuPont, and Mitsubishi, the project recognises that global supply chains are vulnerable to extreme weather events, often driven by climate change.
The project will examine the structure and climate change exposure of two supply chains (corn and lithium) to identify their vulnerabilities and determine measures that could be put in place to build resilience. The next step is to determine ways of increasing resilience given the relative risk levels of these supply chains to climate related events. You can read more about the project in our blog entry on Building resilient supply chains.
Electricity network resilience
Besides the WBSCD project, we’ve also been analysing the electricity supply chain’s vulnerability to extreme weather events. This is an intricately connected network that ranges from electricity generation through transmission and distribution to the delivery of energy to your home or business. And it too, is vulnerable to extreme weather.
In October 2012, Hurricane Sandy hit the USA in New Jersey. In work I’m very proud of, we have modelled what the impact of Hurricane Sandy would have been if it had happened in a warmer world. The above video shows the potential tracks and impact of superstorm Sandy in 2012, 2050 and 2090 as a result of rising ocean surface temperatures.
Working with several US government agencies, we determined that, with just a slight surface temperature increase, Sandy would have hit New York City itself – home to millions of people, hundreds of hospitals and schools, a major port, and the world’s financial capital. We are now working with the New York and Long Island utilities on long-range infrastructure planning to make their electrical infrastructure more resilient in the future.
We also developed a Climate Action Plan for the City of Watsonville, California to address the risks of severe climate change. You can read more about this project in our California’s Greenhouse Reduction Goals and Climate Action Plans blog article.
Arnhem lab flood resilience
As independent certifiers of special grid equipment such as transformers and switch gear, we in DNV GL – Energy are a critical part of a global supply chain. So, triggered by renewed investments, we are conducting a flood resilience study of our KEMA laboratories by the Rhine in Arnhem, the Netherlands. Overall, these labs represent a new-build cost of 400 million Euros, and if flooded, would be out of action for several years. We would then need to decide whether to rebuild or not, and the global supply chain would be missing an important link for equipment testing.
Based on present and past data, the flood risk at this site has been calculated. But as we all know, climates are changing and past data may not help us predict future scenarios in a warming world.
So we are creating a future oriented risk model. This will be achieved by building a hydrological model and a spatial analysis of the location to estimate the water levels as well as the potential flooding impact. The analysis will be completed for the present climate and various future climatic scenarios using state-of-the-art 3D flooding models.
Resilience testing is critical
In summary, supply chain resilience is not a trivial matter. It is about critical infrastructure, food supply, manufacturing, employment, and affordability of goods and services. We strongly encourage you to consider the resilience of your complete supply chain, fully modelling all the level of interconnectivity. In this way, you can help ensure your business isn’t critically damaged by distant weather events.