A flooded car park containing Honda cars

Climate change: can supply chains take the strain?

As extreme weather impacts global supply chains, industries must keep resources moving. Be it the flow of goods, electricity, communications or oil and gas, today's governments, global manufacturers, aid relief organisations and insurance firms are worried sick over supply chain disruptions. And it's easy to see why.

Global and growing, today's supply chains form the backbones of world economies. But as international trade increases, these all-important resource networks are becoming longer, more complex and more vulnerable.

Be it the flow of goods, electricity, communications or oil and gas, today's governments, global manufacturers, aid relief organisations and insurance firms are worried sick over supply chain disruptions. And it's easy to see why.

Take Thailand's devastating 2011 floods. Within months of the onset of the monsoon season, the nation's automobile industry had been wiped out leading to components shortages in the East, while disruption to many Japanese technology manufacturers led to a world shortage of hard disk drives.

Newspapers and business magazines have since run riot with articles on supply chain fragility in the face of disruption. According to Anders Levermann, Professor of Dynamics of Climate Systems at the Germany-based Potsdam Institute for Climate Impact Research, we can expect more of the same.

As he highlights in his recent Nature Comment article, 'Make supply chains climate-smart', the Intergovernmental Panel on Climate Change reports that extreme weather, including Hurricane Sandy-scale storms, severe floods and droughts, is likely to become more frequent and intense as global warming accelerates. And as indicated by the Thai floods, long-distance links in global supply chains mean natural disasters in one place will have repercussions far and wide.

"Overall trade infrastructure doesn't really care what source the impact is from, it is still an impact, and this is going to be very interesting and potentially difficult to deal with," Levermann says.

He is hardly alone with his anxieties. Analysts Richard Gledhill, Dan Hamza-Goodacre and Lit Ping Low from UK-based consultancy firm PWC recently looked at the threats posed by climate change to a range of commodities. Studies included agriculture, namely wheat, maize and rice production, petroleum and gas as well as metals ores from mining.

Documenting their results in an article, 'Business-not-as-usual: Tackling the impact of climate change on supply chain risk', the team reveal that agriculture is particularly vulnerable to climate change. Taking rice production as an example, Gledhill highlights how the impact of climate change on rice will be increasingly felt in south and south-east Asia, while the global supply of rice could be significantly affected as buyers have few alternative sources of supply.

He says: "Often overlooked, climate change adds to complexity. It amplifies or alters existing risks, for example raw material availability or transport disruption due to extreme weather events.

"The resulting shocks on the global supply chain can be severe and persistent," he adds. "Businesses and governments need to start planning for a world with a changed climate. In particular, industries dependent on food, water, energy or ecosystem services need to scrutinise the resilience and viability of their supply chains."

But given the complexity of today's sprawling supply chains and the unexpected nature of climate change events, how exactly do organisations start planning? Levermann believes information is the answer. And right now, the world needs more.

Planet data

According to Levermann, the impact of climate change and extreme events on the complex flows of materials, energy and communications now need to be modelled, with all interactions fully understood.

"Even with, say, food security, which has already been modelled a lot, these models just don't capture extreme events very well," he says. "We don't have a way of quantifying food security, but climate change and extreme weather is going to happen, whether we understand it or not."

With this in mind, researchers worldwide have upped the ante on global supply chain modelling to give governments and other organisations the information needed to prepare for the worst.

Recently, Levermann and colleagues at the Potsdam Institute unveiled a website called Zeean (www.zeean.net). Described as 'a community effort to generate a heterogeneous open-source database of the global economic network at high regional and sectoral detail', the website hosts data on global supply chains so users can visualise and analyse supply chains and risks.

"First we need data to understand what's going on, so people have been feeding in publicly available data and can compare this with other inputs," explains Levermann. "We are also going to add climate impact projections, such as flood or hurricane risks, and directly provide the processed data to users."

Critically, the group has also developed a global damage transfer model, called Acclimate, that aims to capture the indirect effects of climate extremes on the global supply network. What, for example, happens to associated production, material storage and transportation, if a factory is destroyed?

According to Levermann, the model can depict the disaster-induced shock waves in a highly non-linear, time-dependent and spatially explicit way.

The researchers' vision is for the website to eventually host data that cover hundreds of industrial sectors across individual states, provinces and cities, allowing users to track the flows of specific goods at a scale appropriate for the effects of natural disasters. For example, users could find out exactly how many batteries are shipped from Osaka to California, or investigate the impact of a flood in Bangalore on particular industries worldwide.

Levermann hopes this resource will soon serve as the 'wikipedia' for supply chain information, and with this he intends to illustrate the potential impact of climate change to politicians and global businesses.

"Without functioning infrastructure we all suffer and the weak suffer first... but the currency of human suffering doesn't really hit home," he says. "For the industrialised world, it seems, we need to compute the cost of climate change." 

Making connections

Zeean stemmed from a supply chain database pioneered by a group of Australian researchers, led by Manfred Lenzen, Professor of Sustainability Research at Sydney. Called the Eora MRIO – multi-region input output – the supply chain database aims to map out the structure of the entire world economy.

Already containing billions of global supply chains that trace out the networks connecting primary production activities, companies and consumers worldwide, the database is still growing. But while Levermann has adapted data to highlight potential disruptions to global supply chains from climate change, these researchers started out from a different tack.

One Southern-Hemisphere winter, Lenzen's colleague Barney Foran, from the Institute of Land, Water and Society, Charles Sturt University in Australia, decided to trace the path of hardwood as it travelled from rainforests in Sumatra. According to the researcher, the journey took the wood via Indonesia and onto China for manufacture into products, before finally reaching Europe and North America.

The end point of this tropical wood was garden furniture for a particularly hot and balmy Northern-Hemisphere summer. Given the decades-old trend of offshoring production, this time-consuming and lengthy product journey is far from unique, but Foran believes today's long and complex supply chains have enabled consumers to lose track of where the products they purchase actually come from.

"The developed world has offshored so many jobs and so much production to the developing world that it has allowed us to put our impact on the globe out of sight," he says.

Fellow researcher, Dr Arne Geschke from the Integrated Sustainability Analysis team at the University of Sydney, agrees, adding: "It's hard for us to understand how our local actions can have global effects but through international trade these actions have much wider effects."

And this is where the researchers' data has helped. In the summer of 2012, using Eora MRIO data Lenzen and his team published some startling results in Nature that spelt out exactly how international trade chains accelerate habitat degradation far removed from the original place of consumption.

The researchers linked 25,000 animal species threat records – taken from the International Union for Conservation of Nature Red List – to more than 15,000 commodities produced in some 187 countries. Along the way, they evaluated more than five billion supply chains for impact on biodiversity, and discovered that a hefty 30 per cent of global species threats were actually due to international trade.

"With biodiversity, people often look at local issues such as deforestation in Borneo," says Geschke. "But they do not always look at the push factors, which in this case has been the demand for palm oil in cosmetics; more than 30 per cent of products we buy contain palm oil."

Given their results, the researchers emphasise how biodiversity loss must be treated as a global phenomenon and not dealt with by scrutinising, for example, nearby polluters in isolation. What's more, Foran and colleagues say the same approach should be applied to carbon dioxide emissions and more. And this is where the Eora MRIO supply chain database comes into its own.

"In the past, to use this type of [supply chain] data you have needed a lot of computing knowledge and power," says Geschke. "But with [Eora MRIO], people can log in and the system does the number crunching. We want to give more and easier access."

Complex tracks

To build the database, Geschke and colleagues worked with Dr Daniel Moran, now based at the Programme for Industrial Ecology at Norwegian University of Science and Technology (NTNU), who develops MRIO tables to trace resources and environmental impacts embedded in international trade flows.

As he explains, such tables can be used to calculate accurate carbon, water, land, material, and biodiversity footprints, and, crucially, can quantify how a remote ecological shock may propagate through supply chains to affect a particular country or sector.

"We can also use [the Eora MRIO database]'as a tabletop model of the world economy and ask questions like, what happens if a drought affects Russian wheat production? We can watch that shock propagate through the network," he explains. "It turns out Egypt is a major buyer of Russian wheat, and many have said that a price spike in wheat was one catalyst for the Arab Spring uprisings."

The resource is already being used by the likes of the UN, Organisation for Economic Co-operation and Development (OECD) and European Commission but as Barney Foran highlights, this, and other information systems, could also complement the field studies of major development charities.

"Charities such as Oxfam play an increasing role in informing some sectors of society but the information that they gather is generally hard wrought from field visits and interviewing people on the ground." he says. "As our systems get more developed and transparent these types of organisations would have a quicker means of seeing the big picture."

And seeing the big picture is, after all, what Foran, Moran, Geschke and Levermann now realise is so very important. Each researcher is driven by a belief that information systems are crucial to demonstrating the hidden impacts of today's long and opaque global supply chains.

But as Foran highlights, working on such as massive scale brings huge, multi-dimensional problems and, in his own words, "we don't have all the answers". Still, for him, and his peers, supply chain database building isn't going to stop in a hurry.

"World economies are kept going by trade and consumption," he says. "So unless we can present a massive set of interlinked disasters, our hope of having the developed world take this on is unlikely." 

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