Government Required, Corporate Recommended
While the causes of climate change may be disputed, climate change is already beginning to impact business operations and supply chains around the world. Wildfires, severe weather storms, warmer temperatures, thawing permafrost; each of these and many others can impact a company’s ability to operate.
The United States Government Services Administration (GSA) has begun requiring its contractors to submit a Climate Change Risk Management Plan with all RFPs to describe how the contractor will handle sharp, short-term climate risks as well as long-term climate changes.
According to the Fourth National Climate Assessment Chapter 26: Alaska:
“…by mid-century (2046–2065) the highest daily maximum temperature (the hottest temperature one might expect on a given summer day) is projected to increase 4°–8°F compared to the average for 1981–2000. For the same future period (2046–2065), the lowest daily maximum temperature (the highest temperature on the coldest day of the year) throughout most of the state is projected to increase by more than 10°F, with smaller projected changes in the Aleutian Islands and southeastern Alaska. Additionally, the lowest daily minimum temperatures (the coldest nights of the year) are projected to increase by more than 12°F."
These warmer temperatures will reduce the number of days available for the ice roads on the North Slope. Hotter days and nights can also thaw much of the permafrost which is under 80% of Alaska’s land. This thawing can buckle roads, collapse building foundations, and destroy runways; all of which can have a dramatic impact on the Alaskan economy.
Even if your business does not work with GSA, understanding how the effects of climate change can impact your operations is a vital step in continuity planning. Many companies are familiar with Risk Management Plans (RMPs) and use them effectively for a multitude of reasons. Some businesses even include natural disasters in their continuity planning and RMPs, but few have dedicated a full plan to the risks of long-term climate change effects.
SIX STEPS FOR A CLIMATE CHANGE RISK MANAGEMENT PLAN
Thankfully, with adequate thought and planning, creating a Climate Change Risk Management Plan can be accomplished using the six basic steps listed below.
Identify Critical Supply Chains
This is the first, and perhaps the most important step in determining your RMP. When identifying critical supply chains, it is helpful to ask several questions. What are your critical services? What supply chains support these services? Which goods or services are the most time-sensitive, or require the most investment?
One of the most difficult aspects of this step is understanding the full length of your supply chain. Your company may be familiar with its T1 and T2 vendors, but what about T3 or T4? Can you track your supply chain back to its original source? Mapping the entire supply chain requires communication and cooperation with each link in the chain. Once you understand the full scope of your supply chain, you are better situated to respond to problems when one of the links in the chain break.
Identify Climate Change Threats
The next step in the framework is to list the climate chain threats that are specific to your company. Most supply chains today cross oceans; how will rising sea levels affect the ports used by your transportation network? If your supply chain includes produce; how will droughts affect your goods? Will the road systems be cordoned off due to wildfires raging across millions of acres?
Each threat you identify should be relevant to the geography along your supply chain and should have a detrimental effect on your revenue if the event were to occur. This step is important as it will help determine the likelihood and magnitude of the risk.
Assess Threat Likelihood
There are some key points to remember when planning this step of the framework. How often have the threats identified in the previous step affected your business? How much are the threats projected to increase in the future? What level of threat do the changes represent? It is useful to categorize the threat level, either using a numbering system such as 1 for low to 5 for high, or by using descriptors such as Very Low, Low, Moderate, High, or Very High.
Assess Threat Consequence
This step is about asking the question: Would the consequences of the listed threats be non-existent, minor, moderate, major, or catastrophic? This determination depends on how disrupted your supply chain would be if one of the listed threats were to occur. How financially impacted would your organization be if a climate change threat disrupted a critical service? How would it affect your ability to carry out your core mission?
The link provided in the GSA Resource section below includes information for conducting a self-assessment Questionnaire, as well as putting together a workshop for scenario planning.
Risk priority can be determined by considering two elements: How likely is the threat to occur, and what is the consequence of the resulting event. Figure 1 shows a typical Risk Prioritization Matrix and is a great visual tool to determine which climate change threats your company should focus on mitigating.
Mitigate Risks Once your company has completed the previous five steps, it should summarize that information in a quick reference chart listing the highest-threat climate change risks.
This chart should include the following information :
Who is the point of contact within your agency responsible for reacting to the threat?
What is the contact information for that individual? This can include a phone number, email address, or whatever means your company chooses for continuity planning.
Who outside of your agency should you contact should an event occur?
The more points of contact you have, the more prepared your company will be to react to a climate threat.
It is important to make sure your Climate Change Risk Management Plan is reviewed and updated at least annually. As climate change occurs, and new forecasts are developed, your company may find that a climate change risk that had a low prioritization matrix score has escalated into a more dangerous category. It is also important to update the contact information when there is an employee change or if new supply chain links are forged between your company and a new vendor.
The GSA has created an Excel workbook titled, “Framework for Managing Climate Change Risks to Federal Agency Supply Chains”, that can walk a company through the six steps. Even if your business does not operate with the federal government, the workbook can be an effective tool for determining how your company is at risk, and for planning ways to manage those risks.
ABOUT THE AUTHOR
Jason Kelly is currently completing an internship with ASCI. He is a senior at the University of Alaska Anchorage finishing his final semester for a bachelor’s degree in Global Logistics Supply Chain Management with a minor in Computer Information Systems. He is also scheduled to receive an Occupational Endorsement Certificate in Business Analytics. His experience in logistics lies in oilfield supply, inventory consignments, and air cargo shipping.
Contact us at email@example.com or (907) 348-1610 if you would like to set up a free consultation appointment to help with your business’ inventory management needs.