In August 2022, China faced a crippling heat wave that disrupted factories and threatened crop yields — the worst since 1961. Global manufacturers, including Volkswagen and Toyota, were among the companies that suspended operations because of power shortfalls. And some drought-stricken parts of the country are still engulfed by the scorching heat.
China’s 2022 heat wave is just one example of how unprecedented high temperatures threaten the world’s supply chain and fuel the crisis. Some 28.7% of the world’s manufacturing output depends on China, so an upheaval like this has a dramatic impact.
But here’s the issue: Many governmental bodies and companies are focusing on climate change consequences within the supply chain industry without considering the possible solutions. This could be due to big tech companies like Tesla and Apple, whose factories are bound to face potential losses because of natural disasters like this, who can take the costly hit and avoid relocation or diversification strategies. Other companies are not so fortunate.
As Gartner states, disruption will continue, so every logistics leader must adapt. Therefore, it’s time to ask ourselves what we can learn from successful supply chain companies and their solutions.
The “Domino” Effect
The world is still reeling from COVID-19’s disturbance to the supply chain and Russia’s ongoing invasion of Ukraine. So, supply chain officers are now fully versed in the “domino effect.”
That’s why, after years of “Made in China,” some companies were already reassessing their supply chain risk management practices, and diversifying away from their reliance on China. However, the heat wave and drought, which affected the Yangtze River Basin, is an area still dominated by foreign companies, especially from the automotive and semiconductor industries.
When the Yangtze river dried up, it increased the pressure on hydroelectric power plants, which provide energy to key economic zones of the country and factories. As hydroelectric plants shut down, factories diverted available electricity toward residential use. So, that slowed down the shipping of parts needed for cars, batteries, solar panels, and food shortages.
At Gramener, we work with a client based in the U.S. who gets its microchips from China to make air conditioning (AC) units, but the supply is now severely affected to the point that the particular chip is not in production. Their AC cannot function without this chip, so their business had to completely reassess its supply chain model. So, what can they do?
On the Verge of Climate Shock: What Strategies Help Suppliers?
Gartner’s Supply Chain Top 25 for 2022 stated the importance of developing “self-stabilizing supply chains to continually flex resources between mission-critical challenges and vital transformations.” And logistics companies are always told to plan for the unexpected, be ready to act, eliminate risk exposure, and reassess network resilience and agility. But how?
These are some ways to make the supply chain more resilient, agile, and disruption-proof:
Root Cause Analysis and Supply Chain Visibility
The first step is assessing the impact of what is happening (like in China) with a Root Cause Analysis. For example, one of our clients, a global airline, recently wanted to identify the factors leading to a delay in cargo delivery. A what-if predictive analytics model helped them visualize the impact of changing underlying drivers — like staffing levels — to ensure airports restructured budgets and met SLAs.
These models, powered by artificial intelligence (AI), can glean vast troves of data and smooth the effects of disruptions. A supply chain simulator, for example, can provide real-time visualizations from vendor to warehouse to customer to help identify bottlenecks and shipment delays in the transportation of products too.
Data-Driven Insights and Customized Visualizations
It’s important that logistics companies stop their dependence on one region for manufacturing and have a distributed network of manufacturing hubs. Many other countries have optimal conditions similar to China, such as Egypt, Peru, Vietnam, and the Philippines. Therefore, if one region is affected, you could effectively and temporarily move some manufacturing to another location.
For that, companies need an in-depth analysis of KPIs across the supply chain in different countries and areas, including holding costs, country taxes, workforce capabilities and costs, availability of resources, transportation ease, and access to ports. And this data isn’t just required as a one-off; there needs to be a data science company continuously updating and validating it.
Using a simulation engine for operational planning, a data science company could determine exactly how much a logistics company’s relocation would cost. For example, all the manufacturing cost components can be collated with a cost command center. By manipulating the costs of each segment, companies can make evidence-based decisions and frame their relocation strategy going forward.
These models offer opportunities for companies to quickly access cost rationalization and configuration data for a range of countries and their supply chains.
Geospatial Disaster Imagery
Geospatial disaster imagery has also become an essential component of setting up a manufacturing location: It can profile cities, produce geo-models, and figure out how specific locations could be prone to disasters like heat waves.
Geospatial analytics, AI, and big data, alongside data visualization tools, can analyze different datasets that examine heat islands and earthquakes across cities, among other natural disasters. A map, or topographic view, could allow companies to get specific visualizations, while a Scenario Modeling View can modify city visualizations in real-time, such as by adjusting building count.
Even though heat waves and natural disasters have been bringing the global supply chain to a grinding halt asynchronously over the years, it doesn’t have to continue this way. Data science tools and insights can provide logistics companies the ability to control each stage of the supply chain, optimize their processes and costs, and be prepared for the next disruption.
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