Developing an Index for Measuring Supply Chain Vulnerability to Climate Change

The modern economy is based on product and service supply chains that span the world, with each network location chosen for a variety of factors, including labor and transport costs and geopolitical stability. In the past, weather, and especially weather extremes such as heat waves and flooding, affected these and other factors in a relatively predictable way. This allowed supply chain stakeholders to choose sites and plan for contingencies based on the assumption of a stable distribution of weather events. As a result of climate change, the frequency and severity of extreme events has changed, necessitating the need for supply chain planners and managers to reassess how weather figures into their decisions.

While previous work has been done on mapping where changes in climate and extreme events will happen, this information has not been put into the context of the global supply chain. Using high resolution global climate information and a unique dataset of 100,000 global supply chain locations and site-specific attributes such as revenue at risk and the existence of business continuity planning, we provide a first estimate of supply chain vulnerability across the United States and China. We find that 15% of sites are categorized as high risk and that supply chain vulnerability is strongly dependent not only on location, but also preparedness of individual sites. In addition, we identify that the locations that are vulnerable to flooding are concentrated in the east coast and the locations with the number of hot days (>100F) are concentrated in the west coast and southern parts of the country. Drought patterns are evenly spread throughout the country.

This points to the importance of supply chain planners and managers better understanding the localized climate risks their networks face and the options available to adapt, including location-switching and risk-mitigating Courses of Action (COAs). Such fine-grained spatially explicit indicators provide actionable information that allows such organizations to proactively consider climate risk in their risk portfolio decisions.