How to manage supply chain in extreme weather: 7 practical tips

January 3, 2023

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According to a report, extreme weather has cost U.S. firms billions of dollars in the past five years. This number excludes supply chain cost increases like missed production, increased insurance premiums, and legal fees.

In recent years, extreme weather catastrophes such as hurricanes, tornadoes, floods, droughts, and earthquakes have significantly impacted supply chains. Frequently, these natural calamities impair production operations, resulting in shortages or supply delays. A wild winter storm in December 2022 brought freezing rain and near-record low temperatures to most of the United States. Over a dozen people died due to the storm, disrupting holiday travel and utility services for approximately 1.4 million homes and businesses.

Despite such unexpected challenges, businesses must still modify their operations when these disruptions occur and try to meet customer demand. It necessitates the management of inventory levels, shipping tracking, and supplier performance monitoring.

This article provides an overview of how severe weather affects the Supply Chain and how you might mitigate its effects.

How can severe weather impact the supply chain of a business?

There are numerous ways in which extreme weather impacts supply chains. This section lists nine of the most frequent consequences:

1. Transportation network disruptions causing supply chain delays

Interruptions to transportation networks caused by severe weather can lead to shortages of raw materials and final products.

When Hurricane Katrina struck New Orleans in 2005, for instance, the city was inundated due to significant breaches in its levees. As a result of the slow shipping of fresh produce and water in the region, the town had a food and water deficit.

Extreme weather can delay cross-border goods by affecting customs clearance operations at entrance points.

These instances illustrate how extreme weather can cause shipping delays. Traffic slows down during a storm, making it difficult for trucks to deliver goods to clients. Utilizing a tracking solution enables businesses to determine the location of their items throughout the network to alter shipping routes accordingly.

2. Power outages and infrastructure damage resulting in decreased productivity

In addition to affecting infrastructure and electricity networks, severe weather also impacts supply chains. Extreme weather is regarded as the leading cause of blackouts in the United States, costing billions of dollars annually due to ruined inventories and delayed output.

Additionally, damaged facilities might lead to production line disruptions. Before a facility can resume operations, it may need to be repaired if it sustains significant storm damage.

The supply chain becomes more susceptible to disruptions when this occurs. For instance, if a tornado strikes and ruins a facility, production lines could be stopped, resulting in a loss of productivity.

3. Increased Insurance Premiums as a Result of Property Damage

Increased insurance premiums due to property damage is another way severe weather affects supply chains. Severe weather can also cause damage to commercial property, which can be costly for firms in direct and indirect costs. Direct expenses include property repairs, equipment replacement, and revenue loss. Indirect costs include higher insurance premiums, higher labor rates, and significant overhead expenses.

For instance, a building devastated by a storm or tornado may require expensive repairs. It will undoubtedly result in construction project delays and increased insurance prices.

4. Supply Chain Productivity Loss Due to Employee Vacations

Natural catastrophes such as storms, floods, tornadoes, or hurricanes can make it difficult for employees to reach their offices and operate normally. Extreme weather can cause property damage as well as impair worker productivity. A recent poll indicated that weather-related occurrences had a direct impact on productivity.

For instance, personnel cannot complete their regular jobs if they must leave the working site or remain at home to assist with storm cleanup. It means they miss crucial work hours and disturb the organization’s everyday operations.

5. Decreased Customer Service Standards

Ownership of a business entails providing excellent customer service. Customers want companies to deliver exceptional customer service, but extreme weather can impede phone lines, internet connectivity, and other communication services. The severe weather on the supply chain also impacts customer service levels.

If clients cannot contact your company, they may become frustrated and disappointed with your product or service, resulting in decreased customer satisfaction.

6. Economic Losses Because of Business Disruption

Economic losses due to business interruptions are another way severe weather affects corporate supply chains. Business interruption happens when a company loses access to its facilities, such as a warehouse or office space, due to extreme weather. It can occur even if a business maintains physical access to its premises.

A typical instance of such an interruption is when a storm produces floods at a factory. Factories may require weeks of cleanup and recovery following a flood before resuming normal operations.

Customers will not wait for a factory to recover from flooding. They will search elsewhere for items and services that satisfy their requirements. Consequently, the company’s sales volume and profitability diminish.

It occurred in 2005 during hurricane Katrina. Numerous businesses in the coastal areas of the Gulf Coast were demolished and forced to close temporarily due to the catastrophe’s aftermath, resulting in significant economic losses for numerous businesses.

7. Loss of Stock and Materials

In addition to hindering transportation, extreme weather can impact a business’s capacity to keep goods. For instance, a flood can ruin warehoused merchandise. In addition, floods can pollute food and water sources, leading to spoilage and stock contamination.

A fire that damages a warehouse storing inventory is another example. The entire inventory could be destroyed if the blaze spreads to a nearby storage facility.

When this occurs, it is crucial to identify the number of goods stored at each site. It is also essential to determine whether any inventory items were irreplaceable.

8. Demand Variability Due to Alterations in Consumer Behavior

When severe weather occurs, many individuals alter their behavior. They might remain home, cancel trip plans, or avoid particular locales.

These changes in customer behavior affect the demand for a product or service. For instance, assume that many individuals remain indoors during a storm. In such a scenario, fewer individuals will be available to purchase a product or service since consumers will be hesitant to come to a specific area.

How supply chain managers should Plan For extreme Weathers

You cannot prevent severe weather, but you can prepare your supply chain. Here are some tips:

1. Develop A Business Continuity Strategy

Your business continuity strategy should include a contingency plan. This plan should detail the steps to be taken in an emergency.

For instance, your plan may stipulate that you would inform customers of shipment delays. You may also contact suppliers to determine if they have additional capacity to accommodate unforeseen demand increases.

It would be best if you also considered developing a plan for disaster recovery. All essential systems and data should be identified in your disaster recovery strategy. It should also specify how these systems and data will be recovered following a disaster.

2. Determine Vital Systems to Minimize damage

You must identify all of your organization’s vital systems. These systems consist of computers, servers, printers, photocopiers, fax machines, telephones, and other devices utilized by employees.

If feasible, you should frequently back up these systems. Additionally, you should ensure that backup copies are kept in multiple locations.

If you operate a manufacturing facility, you should identify all production-essential equipment. You must also identify irreplaceable materials, such as raw materials and finished goods.

3. Develop an Emergency Supply Chain Response Plan

Developing an emergency response strategy and a business continuity plan are comparable. However, when creating an emergency response strategy, you should emphasize responding to disasters more than preventing them.

The objective of your emergency response plan is to minimize business disruption. Identify essential persons who will respond to emergencies. Additionally, it would help if you determined how to communicate with customers and suppliers.

4. Maintain Sufficient Inventory

Inventory levels are crucial to the maintenance of your supply chain. If stock levels go too low, you may run out of supplies before receiving new orders.

To maintain proper inventory levels, you must regularly monitor your stock levels. Please verify that you have sufficient funds to cover anticipated costs.

5. Safeguard Your Employees

Property protection is always a top focus. Equally essential is protecting your staff from bad weather. Always equip your personnel with the appropriate safety training. Also, verify that your personnel knows where to seek shelter in the event of a tornado warning.

Identify a well-planned evacuation route. Moreover, you should designate secure spaces outside the building where personnel can seek shelter during storms or other emergencies.

6. Communicate with Your Clients and Vendors

Communication is essential for success. You must inform your customers and suppliers of potential service interruptions when severe weather strikes.

Your communication efforts must begin immediately. For instance, you should send emails to your customers and suppliers at least 24 hours before a storm’s onset. This may prevent your consumers and vendors from canceling their orders, saving your business money.

7. Obtain Insurance Protection

Lastly, you should protect your premises and property with insurance. This coverage protects you against natural disaster-related losses.

For instance, you may obtain flood insurance to protect your structures from floods. You might also acquire windstorm insurance to protect your structures from strong winds.

Final thoughts

Severe weather cannot be avoided. Therefore, you must understand how it affects your company’s supply chain to take the necessary precautions. Following the guidelines above for preparing for severe weather can decrease its impact on your organization.