Weathering the Storm: The Importance of a Weather-Related Risk Management Plan for Your Supply Chain
We wear boots to walk on icy sidewalks and bring umbrellas when it rains—we plan ahead and prepare for bad weather events in our daily lives. But in our businesses, we tend to overlook nature and weather-related issues in favor of operational ones.
So why don’t we batten down the hatches (so to speak) when it comes to weather-related risks and our businesses? After all, weather events can affect your business just as much—if not more—than operational risks.
Weather events affect your supply chain
Zurich Insurance Group Ltd. and the Business Continuity Institute found a 29% increase in supply chain issues due to extreme weather since 2012. A possible explanation could be a lack of resources. In an effort to save money, management may be cutting costs by reducing supply chain risk management. With limited resources, organizations aren’t going to put time and effort into non-operational risks.
Although this may save money in the short term, it will end up costing even more in the long term. When taking resources away from risk management, organizations are left with outdated and inefficient processes. Many companies still rely on spreadsheets and disparate documents to manage and assess risk, but that doesn’t let you accurately predict the risk on your supply chain due to weather.
Be proactive instead of reactive
Some companies don’t think about possible weather events until they happen, and then are left scrambling to recover. But companies that map out possible scenarios and have contingency plans in place before a bad weather event happens can recover more quickly and with less damage. This advantage doesn’t manifest often, but when it does, it really pays off for the organization who is more prepared.
Taking a proactive approach helps you stay in control so that if a weather event happens, you’re prepared. Here are three simple steps for building a weather-related risk management plan:
- Identify key suppliers and stakeholders in your organization. Assess the weather events of that area. Is it a coastal location prone to flooding? What method of transportation does that supplier use and how can weather events impede delivery? Can your operation continue as normal if that delivery is canceled or delayed? Knowing the severity and frequency of any possible events is the first step in developing a risk management plan.
- Assess weather-related risk. Use a proven risk management tool like a risk matrix or bowtie model (for potentially catastrophic events). That way, you have a quantitative value for risk for each supplier, stakeholder or scenario. For example, a once-yearly snowstorm that may delay material delivery by 2 days would be much less impactful than your delivery coming from an area that has intense earthquakes twice a year that destroy entire towns.
- Use the data. Make contingency plans based around the identified scenarios, prioritizing by risk level. If the risks presented are too great, you can adjust travel, supply chain and timeline decisions to mitigate risk; then reevaluate using the risk tool to see the impact of your changes, repeating until you achieve your desired risk level.
Applying risk management to weather-related events puts you in the driver’s seat and no longer at the mercy of Mother Nature. Taking a proactive approach to weather risk means you’ll always be one step ahead of your competition who are merely reacting.
Want to learn more about managing risk? Download the guidebook below.