Research Insights: Storms on the Horizon
Climate change and the extreme weather events it is causing have raised alarms among business leaders concerned about the potential effects on global supply chain networks. Professor Laharish Gutunka, Ph.D., assistant professor of finance in Saunders College, and his co-authors published an article, entitled, “Recovery from plant-level supply chain disruptions: supply chain complexity and business continuity management,” in International Journal of Operations & Production Management.
The purpose of this study was to investigate how a manufacturing plant’s internal operations along with its network of connections (upstream and downstream) can have an impact on its recovery time from a disruption. Earlier, in an article entitled, “How Exposed Is Your Supply Chain to Climate Risks?,” published in the Harvard Business Review, Professor Guntuka and his co-authors addressed how exposed those networks are to disruption, and whether businesses have continuity plans in place in the case of weather-related catastrophes.
The article, based on a study conducted by the University of Maryland’s Supply Chain Management Center and Earth Systems Science Interdisciplinary Center together with supply-chain-mapping firm Resilinc, analyzes 12,000 production sites in the United States, China, and Taiwan that serve as suppliers to 100 original equipment manufacturers (OEMs) in the high tech, auto, and consumer goods industries. For each site, the study authors gathered data on climate variability over time, potential business impacts of climate-related events, the availability of backup manufacturing sites, and the existence of a business continuity plan.
Some of the findings are troubling. For example, 80% of sites in the U.S. and 48% of those in China and Taiwan are unprepared for disruptions: they have neither business continuity plans nor alternative sites lined up that could go into operation quickly. Overall, just 11% of all sites in the three countries were fully prepared for climate-related disruptions.
Guntuka and his co-authors offer advice on how businesses can improve their resilience to climate-related disruptions. Steps include mapping your supply chain in depth, conducting a comprehensive assessment of each site’s risks, building the business case for proactive mitigation, designing a climate-resilient supply chain footprint, investing in early-detection systems and associated expertise, and more.
“Executives must intensify their efforts to weather-proof their supply chains,” write the authors. “By reaching scale in such initiatives, multi-enterprise supply chains will be better able to adapt to the rapidly unfolding global climate crisis.
View papers published in Harvard Business Review, May 2022: How Exposed Is Your Supply Chain to Climate Risks? and in International Journal of Operations & Production Management (2023) Recovery from plant-level supply chain disruptions: supply chain complexity and business continuity management.