How to keep your supply chain safe in extreme weather
Extreme weather conditions are not a new feature of the world weather though change in climate has changed the frequency and severity of extremes. Development in exposed areas and the increased value (and vulnerability) of assets in such areas are also important factors. Over the last few years, the devastation caused by extreme weather has dominated media headlines worldwide. The economic impact this has on the global economy is vast, with the UN recently estimating extreme weather has caused $1 trillion worth of damage over the last decade.
It is widely acknowledged the frequency of these extreme weather events is likely to increase in the future. The occurrence of Category four and five hurricanes has more than doubled since the 1970’s, partly caused by the 1°C average global increase in ocean temperatures in the same period. The UN also recently announced 2016 as the hottest year on record, indicative that an increasing number of severe weather events is a trend likely to continue.
This increase in global temperature will result in more intense levels of precipitation which in turn will increase the frequency and severity of flooding. A recent report suggested that one sixth of all property in the UK is at risk of flooding. Indeed, the UK business community is still recovering from the effects of 2015’s Storm Desmond, which affected over 200 businesses with many still, even now, not fully operational. This kind of event, clearly showcases just how destructive extreme weather can be to business and why mitigating against such a risk should be top of mind for companies.
Whilst extreme weather events cannot be stopped, businesses should take precautions and ensure that their operations are resilient, in order to mitigate damage caused by extreme weather.
When a major incident does occur, the result can be traumatic for business, as reputation, profitability and market share can be negatively affected. Mitigating these risks is therefore crucial, to guarantee a business’ long term future.
So what can businesses do to protect themselves against the damage and disruption caused by extreme weather?
A key part of loss prevention is building business resilience. A resilient business can sustain market share and retain reputation following an extreme weather event, gaining an advantage over competitors.
The major impact of strong winds and the most costly, is the damage that results when the building's envelope is torn open and lets wind and rain into the facility. During a windstorm, damage to the building’s structural frame seldom occurs. Yet, a very small breach in the building envelope can damage large area of the building’s interior. For this reason, keeping the building envelope sealed is one of the most effective ways of preventing windstorm damage at a facility.
A building envelope can be kept secure in various ways, such as by ensuring that roof perimeters with particular focus on corners are strengthened with fasteners, undertaking regular maintenance to repair damaged roof flashing, walls or weaknesses which high-strength winds could exacerbate, and ensuring that higher level openings are properly designed to withstand the expected wind speeds.
Research has shown that a flood can cost your businesses an average of £2.1m in property damage. Therefore it is key for businesses to fully understand the exposure of their site to prevent flood loss.
For a facility located in a known flood zone, it is not a case of if it will flood, but when. Flood damage and disruption is influenced by the depth, velocity of floodwaters and duration of the event. Floodwaters carry sediments (sometime of large size) that can damage and even destroy properties. They can contain various contaminants including chemicals and even raw sewage which also adds to the damage potential. Facilities that exist within flood zones should prioritise two strategies: keeping the floodwater out of important buildings, and limiting what gets damaged when water does enter a structure.
To reduce the impact of flood on business, there are simple, practical steps that can be taken, such as moving critical items out of exposed areas. The damage can be mitigated by making permanent physical changes to your facility, such as installing flood proof doors, barriers, submersible pumps, anchoring any outside equipment, and filling empty storage tanks. Where the above is feasible and practical, these measures significantly reduce the impact of a flood.
Elevating important equipment (permanently or temporarily) above predicted flood levels is also an excellent way of mitigating the damage. As a minimum all facilities potentially exposed to flooding should develop a flood emergency response plan. Such plan should be based on an understanding of the importance of assets to the business as well as their intrinsic value and the repair/replacement time is such assets are damaged.
As the world becomes increasingly interconnected, and the drive for efficiency increases, loss prevention becomes more complicated due to the nature of global supply chains. Now, one event far away can cause operations along the entire supply chain to cease. With this in mind risk to the businesses from the supply chains need to be properly evaluated, and that protection options or alternative supply sources are identified.
These alternatives need to be in locations not susceptible to the same type of weather events. Businesses that have adequate risk prevention practices in place will be in a position to gain an advantage over competitors who do not.
How can an insurer help?
Given the variety of risks that extreme weather events can present for businesses, it is clear that insurers should help their policy holders in a number of ways. At a basic level, insurers can compensate for lost income, ensuring that businesses still have the capital available to keep operating and will not be brought to a standstill by an extreme weather event.
Insurers can also go a step further by assisting in the creation of a business continuity plan covering areas such as, disaster recovery, employee safety, retrieval of business data, emergency communications and the possible relocation of a business to a more suitable area. A continuity plan can ensure that a business can resume normal operations quickly, safeguarding market share, reputation and profitability.
Insurers should help clients identify the, ‘pinch points’, as well as show which areas aren’t covered, to help them create a higher level of resilience within the business, which will mitigate the damage that extreme weather events can cause.
At FM Global we believe that business resilience and the long-term success of an organisation go hand in hand. With this in mind we would always encourage our policy-holders to take a long-term view of their businesses, and to implement risk prevention strategies which increase the resilience of their business. A resilient business can mitigate both the material and reputational damage that extreme weather events cause, ensuring long-term success.
By Joe Cullen, Group Manager - Field Engineering, FM Global
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”