Senior Client Partner, ESG and CPO Center Of Expertise
This Week in Leadership
Holiday Planning as Global Shipping Turns into Mayhem
Companies are struggling to manage a shipping industry that is not, well, shipping.
Across the western United States and Canada, fires and record high temperatures have grounded flights and rerouted trucks. In Japan, landslides caused by record rainfall have closed roads. Floods have caused extensive damage in Belgium and Germany. Now, China’s official meteorologists are predicting rainfall this summer as much as 50% more than usual, likely leading to large-scale flooding of major rivers across the country.
Both the physical and personal damage of today’s seemingly ever-present extreme weather are obvious to most, but less obvious is how dramatically it is testing the supply chains of countless organizations around the world. Procurement officers and other supply chain leaders are having to adjust their tactics to ensure the delivery of goods in the short term. Many are also convinced that extreme weather events are going to show up more frequently and will force their firms to answer some tough but long-delayed questions about how their goods are produced and delivered. “Can we maintain the structure we have and risk not getting goods, or do you build in resiliency, which will add cost?” says Cheryl D’Cruz-Young, a Korn Ferry senior client partner who specializes in recruiting supply chain and procurement executives.
For the moment, leaders are turning to a variety of workarounds—some expensive, some not—to keep business moving during the bad weather. Companies have added cooling stations for employees working in warehouses without air conditioning. They’re throwing goods on trucks when planes won’t fly and on trains when the trucks can’t go. If a company can’t supply one product, it offers customers close substitutes. “You won’t realign the supply chain in the short term, you try to move it around,” says Melissa Hadhazy, a Korn Ferry senior client partner and an advisory leader on the firm’s industrial team. If all else fails, companies are executing force majeure clauses in their supply contracts, saying forces behind their control have prevented them from honoring contracts.
But it’s the prospect of an increasing number of future heat waves, deep freezes, hurricanes, and other extreme weather events that is convincing some supply chain leaders to consider large adjustments that will play out over the next several years. Strategic planning, D’Cruz-Young says, has become critical as companies determine what, in extreme cases, their costs could be if weather events dent their businesses. Many firms want to build more resiliency into their supply chains, adding additional suppliers in different regions of the world or allowing for a gradual buildup of product or commodity inventory. Some of these moves were already being considered because of how the COVID-19 pandemic disrupted nearly everyone’s supply chain, but experts say some leaders are looking at changes to reduce weather-related risks, such as adding air conditioning to warehouses in regions expected to warm or reinforcing buildings located in areas that face the prospect of flooding.
These moves will certainly increase costs, but that’s the trade-off to build agility and resiliency into the system. For example, says D’Cruz-Young, companies might decide that a 5% cost increase is more palatable than the prospect of a hurricane or similar extreme weather event pushing up costs 20%. In some cases, companies may not have much choice. Hadhazy says some insurers, for instance, are demanding changes to both how warehouses are built and how many goods are put in them if a company wants the building insured.
The extreme weather isn’t the only challenge testing supply chains right now. The giant cargo ship that was stuck in the middle of the Suez Canal for a week in March is still causing delays in shipping traffic worldwide. A shortage of truck drivers has slowed down ground transportation while a shortage of dockworkers has slowed down the speed of goods being onloaded and offloaded at ports. A handful of massive cyberattacks shut down pipelines and food manufacturers. And, of course, there is still COVID-19, which for more than a year has caused sporadic shutdowns of factories, mines, and all sorts of manufacturing facilities around the world. “Right now, it’s a confluence of everything bad,” D’Cruz-Young says.