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Meredith Mejia • July 7th, 2023.
Emerging risks, advanced technologies, and global market trends are redefining the landscape of supply chain planning in favor of more agile and adaptable strategies.
In particular, climate change-related events, from the obvious floods and wildfires to gradual temperature rises, pose both acute and chronic risks to supply chains. That complicates supply chain management.
In ClimateAi’s recent virtual fireside chat, “Building a Climate Resilient Supply Chain,” ClimateAi CEO Himanshu Gupta and Toby Brzoznowski, supply chain expert, climate-tech investor, and former co-founder and chief strategy officer of LLamasoft, discussed these climate change-related disruptions to supply chains — and how companies can optimize planning to stay agile.
Toby helped found Llamasoft in the early aughts. Llamasoft’s software enables companies to simulate scenarios facing their supply chain operations, which helps them optimize design to improve cost, service, sustainability, and risk mitigation. Toby explained how he’s seen supply chain strategies shift throughout his career. In the past, supply chain planners would evaluate operations every few years, then execute in between. But after the financial crisis of 2008, supply chain planners realized they had to “continuously redesign [their] supply chain because volatility and change are not something that happens every two, three years — it’s constant,” Toby said in the fireside chat.
And with climate change accelerating, supply chain managers must assess how both these acute and chronic risks will affect the “what,” “where,” and “how” of their supply chains, and design around them. That’s where predictive technologies and climate insights can help.
Climate change’s impacts are often record-breaking, headline-grabbing events. Consider: Scientists said July 3-5 of 2023 were quite likely the hottest in Earth’s modern history.
But often unseen or overlooked are the impacts of climate change on supply chains. Overall, extreme weather and long-term climate trends are impacting the “what’s,” “where’s,” and “how’s” of supply chains, Himanshu said.
He explained that supply chain managers must always be thinking about three factors of supply chain design.
The answers to these questions are also always changing. That makes getting ahead of them difficult, especially as climate change amplifies such volatility. Consider: If a sourcing region of a crop is hit by climate change-fuelled drought one season, it might become too scarce or too expensive to use. If that region is experiencing long-term dryness, supply chain managers must decide if they should still use that crop. Or, maybe they should search for an alternative sourcing region. Still, they need data to understand how to make the best decision here to best serve their customers’ needs.
Toby added that making decisions about these design factors is twofold. Planners must make both large structural decisions and everyday policy decisions.
However, supply chain managers can be flat-footed on both parts, Toby pointed out. In terms of the “Three Rs” — risk, resilience, and response — people tend to “respond” rather than focus on systemic risk and resilience.
“A lot of times, if you’re getting to that third one of response, it’s too late,” Toby said. “You’re not going to be able to deal with it.”
Instead of being reactionary, being proactive is the key, Toby explained. “Predictive technologies of any kind can give supply chain people a leg up.”
“Predictive technologies” refer to various tools and techniques that analyze historical data and current trends to make predictions about future events and demand. Climate predictive technologies also use climate data and computer simulations to forecast future climate conditions and their impact on weather-based supply and demand. With it, organizations uncover new risks and understand the most effective and cost-effective resilience decisions. It enables better inventory management, production planning, and resource allocation.
Long-term climate-related trends are chronic risks that managers have to factor into structural decisions. And short-term weather-related extreme events factor into their policies for how they react and adapt day-to-day. Predictive technologies can help with both, Toby said.
They help by predicting the higher risk of weather-related events, which enables better decision-making. “On elements that may be impacted by weather-related events, you can create redundancies throughout the supply chain,” Toby explained. That helps “get ahead of my competitors by making smarter decisions for where I produce, where I source from, or how I ship.”
For long-term events, “being able to predict the climate and where there might be water shortages, where there might be significant changes in temperature that are going to significantly affect weather patterns and affect the availability of resources — if you can get ahead of that and you can make those smart investments, those capital investments that are sometimes half a billion dollars or more are going to be great for the revenue and for the shareholders,” he added.
This way, Toby said, “If I can design a more responsive and resilient supply chain where I can be flexible to quickly change sourcing or transportation lanes — being able to move inventory and pre-position inventory ahead of major events — that gives me a competitive advantage.”
Himanshu explained several use cases for climate predictive technologies. “A major roofing shingles company was able to plan better for Hurricane Ian last year, with regards to the placement of roofing shingles across multiple counties in Florida,” Himanshu said. “And they saw an increase in sales numbers to that.”
Another example is an Australian seed company, Advanta Seeds (UPL subsidiary). It used predictive technologies to forecast weather-based demand for seeds in key markets. They moved product to the affected locations and captured market share. “Using our platform, they have seen 5-10% increase in sales numbers every season,” he continued.
As Toby said, with volatility as the new normal, “Any one-day or two-day advantage you can get in these situations can make a huge difference in having things available to your customers.”
In the agriculture sector at large, many agri-businesses can leverage predictive technologies to “figure out where crops’ [optimal growing conditions] are moving and what would that means for the logistics, as well as their market share, in the next 10- 20 years,” Himanshu said. “They want to be ahead of their competitors in acquiring those markets, launching seeds for them, and maintaining the right relationships with the farmers.”
The dynamics of supply chain planning have never been more complicated. But technologies can provide companies with a competitive edge.
As Toby concluded, “If you can predict things ahead of time, you’re able to both react and change your policies.”
Supply chain professionals are embracing innovative strategies to optimize efficiency, enhance visibility, and adapt swiftly. Predictive technologies give supply chain professionals an advantage by helping them anticipate and mitigate climate risks and meet customer needs.