urdan final paper--sustainability, climate change and supply chain disruption, corrected and revised

Sustainability, Climate Change and Supply Chain Disruption, of 14

Final Paper: Sustainability, Climate Change and Supply Chain Disruption

Matthew S. Urdan

MBA 635: Decision Making for Business Operations

Professor Mary J. Meixell

Quinnipiac University

May 3, 2015


Sustainability, Climate Change and Supply Chain Disruption

“Two days after Hurricane Sandy—the largest Atlantic tropical cyclone on record—brought strong winds and dangerous flooding to the East coast of the United States, customers trickled into a Brooklyn Starbucks hoping to find lattes, pastries, electrical outlets for charging cell phones, and a functioning Internet hotspot. The power was back on, but the coffee was served black and the bakery case was bare. Milk and other perishables had gone bad during the two-day closure. This story played out across the roughly 1,000 Starbucks coffee shops that closed as a result of the storm” (Smith, 2013, p. 43).

Starbucks was not unique in suffering severe supply chain disruptions in operations as a result of Hurricane Sandy. Smith (2013) continues: “Extreme weather can have pronounced and prolonged impacts up and down the supply chain of nearly every product or service sold. Traffic congestion and other supply chain glitches can delay shipments for days or even weeks. During the week after Sandy struck, trailer and container shipments nationwide were 6.2% lower than a year earlier, and train carloads were down 6.8% due to severely disrupted rail and port operations on the East Coast [as the result of just one hurricane]. A growing number of companies have become aware that changes in Earth’s climate—an increased risk of intense storms or prolonged droughts [such as the current drought in California that threatens Central Valley agriculture], for example—can make supply chains more vulnerable to disruptions that increase costs and damage reputations. Some companies have responded to environmental change by attempting to reduce greenhouse gas emissions, improve efficiency in operations and supply chains, and increase transparency and redundancy across their supply networks” (Smith, 2013, pp 43-44). Doing so makes good business sense as high sustainability companies routinely outperform financially companies with low commitments to sustainability (Eccles, Ioannou, and Serafeim, 2012). However, while corporate sustainability efforts are good business in terms of marketing strategies and usually improved financial performance, are corporate efforts to become more sustainable and to increase supplier redundancy efforts enough in light of accelerating climate change impacts and disruptions?

“Supply chain disruptions and the associated operational and financial risks represent the most pressing concern facing firms that compete in today’s global marketplace” (Craighead, Blackhurst, Rungtusanatham and Handfield, 2007, p. 131).” However, little research is being done on the effects of climate change on business practices in general, let alone major disruptive impacts to the supply chains that the world depends on not just for the latest Barbie doll from Guangdong, but for the food and water supply we need for future survival in a world with a growing population expected to exceed nine billion by 2050 (United Nations Department of Economic and Social Affairs, 2013; Rockstrom et al, 2009). Because firms are grappling with how to become more sustainable in terms of reducing greenhouse gas emissions, this is what drives current research in supply chain sustainability rather than adaptation to climate change disruption. A survey of current research shows how the focus of current supply chain sustainability efforts and initiative is focused on greenhouse gases, and yet even with all the research and grand announcements of commitment to sustainability, transition to full sustainability is not a priority in corporate executive offices.

Carter and Easton (2011) express my concern that all the focus on greenhouse gas emissions is seen as the end all of sustainability efforts that corporations really do not understand


the need for corporate social responsibility as it applies to full integration of sustainability into every business operation. “Much of the supply chain research that many would consider to be a part of corporate social responsibility (CSR) and sustainability has occurred in a standalone fashion, in which there has been little or no recognition of the interrelationships among topics such as the environment, diversity, human rights, philanthropy, and safety, and the fact that these are really components of the larger, more holistic concepts of CSR, and sustainability as they apply to supply chain management. Similarly, supply chain managers often initiated and managed past projects in a standalone fashion, without a clear, holistic, and more strategic understanding of how these pieces of the puzzle fit together to create their organization’s overall sustainability position (Carter and Easton, 2011, p. 47).

Halldorsson and Kovacs (2010) show that energy security is one of the most immediate challenges society is facing, therefore energy efficiency in transportation has received considerable attention from researchers. Energy is critical to logistics and supply chain management and worldwide transportation accounts for 20% of primary global energy use. Because supply chains and energy security are two of four emerging issues that will fundamentally shape our future, climate change and energy efficiency stakeholders have convergent agendas. Consequently, “supply chain disruptions require [energy security] to be dealt with in a more distinct manner than has been the case so far” (Halldorsson and Kovacs, 2010, p. 6).

Jira and Toffel (2013) show that individual firms are responding to climate change by reducing carbon and greenhouse gases. This is good news, however, they are not going further than this, erroneously believing that a sustainability effort only encompasses greenhouse gas reduction, and therefore are not preparing to adapt to the other impacts of climate change, such as flooding and other forms of disruption. Instead, companies are more concerned with using sustainability as a marketing initiative. “PepsiCo [and other companies are] developing carbon footprint product labels, with the hope of differentiating products and increasing sales” (Jira and Toffel, 2013, p. 1). Jira and Toffel also echo the Walmart sustainability coverage from MBA program texts: “Walmart CEO Lee Scott committed the company to three stretch goals: to be supplied 100 percent by renewable energy, to create zero waste, and to sell products that sustain Walmart’s resources and the environment. This greening of the supply chain, that is still supported today, was more than Walmart could do by itself and included all of its 60,000 suppliers” (Schroeder, Goldstein, and Rungtusanatham, 2013, p. 38). However, Walmart’s suppliers have been deterred from information sharing to verify greenhouse gas emissions reductions. “Walmart’s senior director of sustainability and strategy acknowledged that the sustainability information Walmart requests from its suppliers, including GHG emissions levels and reduction targets, will ‘help us recognize who’s leading and who’s lagging’” (Jira and Toffel, 2013, p. 5). Therefore, the efficacy and achievement of Walmart’s stretch goals six years after Scott’s announcement is highly in question, if for no other reason than Walmart’s suppliers are concerned about where they stand comparatively against other suppliers in taking steps to become sustainable. Because Walmart suppliers do not want to be ranked against each other, they do not provide the information Walmart needs to assess the sustainability of its vast supply chain operations network.

Meixell and Luoma (2015), in surveying research in stakeholder pressure, which perhaps can be used by issue proponents with convergent agendas as Halldorsson and Kovacs (2010) have noted, have found that a stakeholder approach to sustainability efforts may lead to a promotion of shared interests and that “stakeholder pressure can result in a virtuous circle of


proactive environmental strategies” (Meixell and Luoma, 2015, p. 70). However, if proactive environmental strategies are being developed and utilized, there is little evidence in the research literature. While somewhat dated, Brickman and Ungerman (2008) report that “a McKinsey survey of more than 2,000 global executives finds that while nearly half of respondents say that climate change is a somewhat or very important issue to consider in purchasing and supply chain management, fewer than one-quarter report their companies always or frequently take climate change into consideration in these areas” (Brickman and Ungerman, 2008, p. 1). Of course, taking climate change into consideration does not mean taking action consistent with sustainability initiatives or as a proactive adaptation to climate change. Further, “a recent study from the Organization for Economic Cooperation and Development (OECD) found that while companies are generally aware of the physical impacts of climate change, few undertake formal assessments of the specific risks they face and follow up with action on adaptation to reduce those risks” (Thorpe and Fennell, 2012, p. 5).

But Smith (2013) also writes that “within these organizations, however, those responsible for improving environmental performance are often isolated, operating at a project scale rather than company-wide, formulating tactical decisions after the fact, and kept at arm’s length from critical resources. The pathways to new business models, in which strategic sustainability capabilities are truly embedded within core operations, are not always apparent. The supply chain, however, is emerging as an important place to embed sustainability, mostly because the risks of ignoring it are glaringly obvious” (Smith, 2013, p. 45). Therefore, a further question for Meixell and Luoma to investigate might be in identifying the stakeholder groups that can exert the most influence and pressure on corporate decision makers and how to use them to build coalitions with NGOs, government agencies and the community to achieve convergent agendas. It is not enough for a company to focus on a project scale and assert that it has a sustainability program for marketing purposes. Companies must embed sustainability within their operational structure.

Currently, it appears that sustainability initiatives within companies only represent a reactive response to gradual concerns of global warming and sea level rise that have been omnipresent in the media over the last quarter century, rather than a proactive response to climate change. However, short term coping strategies are not only maladaptive, but they also undermine long term resilience. Still companies for the most part feel hamstrung by climate change impacts. “Short-term pressures to deliver quarterly results are one challenge, as is the view that investing in adaptation is tantamount to failure in the battle to halt climate change. However, scientific uncertainties about the precise location, magnitude, timing, and consequences of climate impacts may be the biggest factor limiting the ability of companies to predict and respond to physical climate risks” (Thorpe and Fennell, 2012, p. 15). Consequently, when action is taken, many companies attempt to focus on the marketing or public relations aspects of current sustainability efforts, like PepsiCo and Walmart because they can positively impact quarterly results. Regardless of motivation, the business response, when present, has been to take action to mitigate activities that contribute to global warming by working to reduce greenhouse gas emissions and carbon footprints. Even MBA text books in sustainability sections focus on greenhouse gases and their contribution to global warming. “Sustainability refers to minimizing or eliminating the environmental impact of operations. It begins by looking at the environmental footprint. Firms should not take a fragmented approach such as minimizing the transportation carbon footprint only. Rather, the greening of operations and the supply chain should begin by examining the opportunities for reducing the environmental footprint in the firm


across all operations and supply chains globally” (Schroeder, Goldstein and Rungtusanatham, 2013, p. 37). However, even looking at every area of carbon footprint impact in the entire supply chain is still a fragmented approach because companies seemingly almost never take action in other areas of sustainability beyond reducing greenhouse gas emissions. Unfortunately, mitigation and reduction of greenhouse gases is no longer enough action, nor is it sustainable because the time horizon for climate change impacts is now. We have surpassed the planetary boundary for greenhouse gas emissions that have triggered climate change (Rockstrom et al, 2009). Global temperatures are expected to rise two to three degrees centigrade by 2050 even if we reduce individual carbon footprints in every major business operation and supply chain worldwide. This is because of increased aggregate greenhouse gas emissions and resource depletion due to rising population. Even if we take steps to become fully sustainable today in every business and logistics operation, population increase to nine billion and the impact of increased resource use from an increased population will outpace carbon reduction efforts and put enormous pressure on the world’s capacity to sustain life, let alone its energy and supply chain systems. The stakes cannot be higher.

Ismail Serageldin, former Vice President for Special Programs of the World Bank warned in 1995: “If the wars of this century were fought over oil, the wars of the next century will be fought over water.” In truth, “the challenge of freshwater scarcity and ecosystem depletion is rapidly emerging as one of the defining fulcrums of world politics and human civilization. A century of unprecedented freshwater abundance is being eclipsed by a new age characterized by acute disparities in water wealth, chronic insufficiencies, and deteriorating environmental sustainability across many of the most heavily populated parts of the planet. Just as oil conflicts played a central role in defining the history of the 1900s, the struggle to command increasingly scarce, usable water resources is set to shape the destinies of societies and the world order of the twenty first century. Water is overtaking oil as the world’s scarcest critical natural resource. But water is more than the new oil. Oil, in the end, is substitutable; but water’s uses are pervasive, irreplaceable by any other substance, and utterly indispensable” (Solomon, 2010, p. 367).

Today, twenty years later, Serageldin’s prophecy of the challenges from freshwater scarcity are becoming devastatingly evident: severe drought in California has been covered extensively in the media over the last year. Impacts of the current drought in California will certainly have major impacts on the ability of Central Valley farmers to grow and export agricultural products we as a nation and the world depend on. However, another consequence of drought, flood, climate change and sea level rise is the emergence of increasing human migrations prompted by climate change and an unimaginable number of environmental refugees that will be a major disruption for every world supply chain.

“Drought and water scarcity is the third main climate change impact that may significantly contribute to climate-related migration. A temperature increase of 2–3 degrees centigrade could cause around 800 million-1.8 billion people to suffer from water shortage, assuming low population growth. In the worst-case scenario, the additional number of people experiencing hunger due to climate change could be around 200 million by the 2050s. Moreover, the supply of fresh water will decrease due to glacier retreat. More than one-sixth of the world population currently depends on water supplied by glacier melt, which will further decline in the next decades.” (Bierman and Boas, 2010, p. 69).

“While these statistics are at once both overwhelming and alarming, Bierman and Boas go on to argue that “dealing with the resettlement of millions of climate refugees over the course of the century will require not only a new legal regime, but also one or several international


agencies to deal with this task.” Additionally, they note that these issues are already being addressed from a security standpoint by military and defense planners, and in truth, in terms of any nation’s national security, it is in the best interests of all to plan for waves of climate refugees to mitigate the impact of potentially hundreds of millions of human beings moving across the planet in mass migrations. Therefore, Bierman and Boas advocate for a new research program in what they call ‘global adaptation governance’” (Urdan, 2011, para 28).

“In light of the most recent scientific findings, which indicate possibly accelerating climatic change, there is thus an urgent need for a new academic research program on what we propose to call ‘global adaptation governance.’ Global adaptation governance will affect most areas of world politics, including many core institutions and organizations of current global governance. The need to adapt to climate change will influence, for example, the structure of global food regimes and the work of the UN Food and Agriculture Organization (FAO); global health governance and the agenda of the World Health Organization (WHO); global trade in goods whose production will be harmed or helped by climate change; the world economic system and the ability of the International Monetary Fund to address climate-related shocks to national and regional economies; and many other sectors from tourism to transportation or even international security” (Bierman and Boas, 2010, pp. 60-61). Every business should take note. While global adaptation governance and coordination needs are certain to increase and will be initiated or increased in the political realm of international relations, the business world must also change its collective mindset and plan on incorporating major change management and adaptive strategies necessary for not only supply chain management, but ultimately for business survival.

While some dispute the numbers presented by Bierman and Boas and the language of labeling displaced peoples as climate refugees, which some argue gives displaced peoples the connotation of being victims (Farbotko and Lazrus, 2012; Marino, 2011; Feng, Krueger and Oppenheimer, 2010), large numbers of environmental refugees are already being displaced. While Farbotko and Lazrus (2012) specifically dispute the labeling of environmental refugee for the citizens of the island nation of Tuvalu, they note that the label of “environmental refugees” belongs to the victims of Hurricane Katrina, as 250,000 displaced from New Orleans have not yet returned to the city. And even though the 10,000 citizens of Tuvalu are facing increased floods and the eventual drowning of their South Pacific island from sea level rise, they prefer to see themselves as a unique culture and people that is fighting for its survival, but that has responded to environmental threats throughout its history by migrating from island to island as necessary. However, the modern world with its political borders and entrenched populations no longer permits the migration of civilizations to new lands, let alone currently occupied ones. In the case of Shishmaref, Alaska, however, its residents are also legitimately considered to be environmental refugees and are facing relocation to another part of the state (Marino, 2011) because of sea level rise. But impacts of sea level rise are not just limited to the Aleutian Islands in the United States, however. Just days ago Business Insider (2015) published video on the impacts of sea level rise for coastal areas of the United States that shows the obliteration of major cities like Miami, which currently deals with major flooding with every high tide the full moon brings on, yet the State of Florida has officially banned the discussion of “climate change” by government employees.

Some major concrete numbers have been projected that relate to climate change in general in developing countries, and specifically in Mexico and the forcing of agricultural related environmental refugee migration to the United States. When climate change makes existing


agricultural production no longer possible, agricultural workers will be forced to migrate to find work and to survive. “The International Energy Agency warned in May 2012 that the door is already closing on the possibility of keeping global warming within two degrees Celsius, a limit beyond which scientists warn the climate could become unstable. Unless we change course, experts predict a 15-30 percent decline in agricultural productivity in the period up to 2080 in developing country regions that are most exposed to climate change. But the decline could be as much as 50% in some countries. Although much of the discussion around climate change focuses on future risk, Oxfam is aware that in developing countries, hundreds of millions of farmers—many of whom are women—and their communities are already suffering from the effects of changing weather patterns on their livelihoods. Many areas are witnessing increasing frequency of natural disasters, food shortages and drought, with adverse impacts in areas such as health, water and food security” (Thorpe and Fennell, 2012, p. 3). Further, “one widely cited impact is the displacement of large numbers of people. Among all potential ‘climate refugees’ or ‘environmental migrants’, those crossing international borders are likely to be of particular concern for both developing and developed countries. Although migration is a normal part of the development process and can be an important risk management strategy for households, unmanaged and unexpected climate-related migration could exacerbate a range of problems, including deterioration of ecosystems, slowing of regional economic development, disruption of human and political rights, and increased international conflicts and border fortification (Feng, Krueger and Oppenheimer, 2010, p. 14257). Based upon today’s Mexican population of 70 million, Feng, Krueger and Oppenheimer estimate 5.5 to 6.7 million Mexicans will immigrate to the United States by 2080 because of the impact of climate change on Mexican agricultural production (Feng, Krueger and Oppenheimer, 2010). Further, “the stability of the whole food system may be at risk under climate change since it could be affected in several ways ranging from direct effects on food production, to changes in markets, food prices, food utilization, access to food, and supply chain infrastructure….Transportation is likely the most critical step throughout the ‘food journey’ from farm to fork, because of the potential stresses affecting the products during the shipments and storage activities especially in international and intercontinental distribution of perishable and not perishable food products….While new challenges e.g. climate change, oil dependency, fair trade and localism have emerged for the sustainability of food supply chains, the food industry is still battling with ongoing challenges e.g. food security, waste and public health….Many efforts are also being undertaken by the food industry to rebuild the consumer confidence by implementing production protocols, information technology and supply chain management processes to improve quality and safety control through transparency of the food supply chain” (Li, Wang, Chan and Manzini, 2014, pp. 2-4).

What is clear, however, is that climate change will put major stresses on food production lands, transportation and distribution networks and logistics, processes, quality and safety control all while dealing with the stresses of migrating laborers in search of protecting their own livelihoods. The global food supply and sourcing of food, let alone the production of food needed to supply nine billion people in the next fifty years is significantly threatened by climate change disruption.

Therefore I contend that all companies need to consider much more than the sustainability efforts undertaken within their offices and supply chains, but rather companies need to take steps to adapt their operations and supply chains in preparation for increasing climate change to build resiliency into their organizations and to help ensure business survival. “SSCM [Sustainable Supply Chain Management] involves the long-run improvement of an


organization’s economic bottom line and helps managers to answer the question of ‘What is it that we need to do, not just to survive, but to thrive, and not just one year, three years or five years from now, but in ten years, 20 years, and beyond?’ Again, this is a salient conceptualization that can begin to allow managers to take tangible actions” (Carter and Easton, 2011, p. 49). If managers take some time and apply real discussion to these questions, they will find that they need to immediately embed sustainability into all of their operations, examine facility strategies, product sourcing from sustainable areas and or sustainable harvesting practices along with outsourcing and off-shoring and quality improvements. Finally, they must evaluate the use of MRP and JIT systems to incorporate climate change resilience into their organizations.

One of the most pressing issues is facility strategy. “China’s see level hit a record high in 2012 due to global warming and land subsidence, threating millions of coastal residents, according to a government report. The State Oceanic Administration report released Tuesday said that last year, the sea level rose 122 millimeters more than the average level from 1975-1993, about 53 mm higher than 2011” (Qian, 2012, para 1-2). What is at first striking about this report is that China is measuring sea level rise from global warming in millimeters and that a 53 mm (or 5.3 centimeter or 2.087 inch) rise in sea level occurred in just one year. “Over the past 30 years, the rising rate of coastal sea level has been 2.7 mm/year in the South China sea, 1.8 mm/year in Guangdong, which are similar to the national mean rise rate of sea level, slightly higher than the global average value” (Yaodong, 2012, p. 3). United States corporations alone have offshored and outsourced manufacturing operations to hundreds of thousands of factories in Guangdong, China. Barbie Dolls and Fisher Price toys are manufactured in Mattel’s factories in Guangdong, China, as are countless other products from over 60,000 Walmart supplier factories. Mattel and Walmart operations in Guangdong, however, represent just a subset of the world’s offshored manufacturing operations taking place in Guangdong and other areas of China subject to climate change impacts and sea level rise. “The ongoing sea level rise has [already] had adverse effects on economic development and the ecological environment in Guangdong coastal areas. Firstly, the magnitude of disasters and the probability of occurrence of storm surges have increased. For example, over the last 10 years, the frequency that the coastal areas in Guangdong have been hit by strong storm surges has increased 1.5 times compared to the period of 1949-1995. Secondly, waterlogging in coastal cities has occurred more frequently. The siltation in the estuaries of rivers has increased and river beds have risen, which have seriously affected the normal operation of waterways and ports. Thirdly, coastal erosion has been exacerbated. In the recent 40 years, Mashitongguling coast in Zhanjiang City of Guangdong Province has been eroded and retreated 25 meters, with a rate of .6 meters a year. The highest observed tide level exceeded the highest tide level of coastal engineering design in Guangdong province. In Guangzhou city, the elevation standards for outlet have continued to rise” (Yaodong, 2012, p.4). None of these statistics bode well for manufacturing facilities outsourced and off-shored to Guangdong. Yet, Guangdong is not alone in its susceptibility to storm surge and damage, port destruction, lowered capacity and operation disruption. Most threatening is sea level rise. “The World Bank has crunched the numbers and the results are in. Five of the world’s 10 cities most at risk of flooding as climate change causes sea levels to rise are in the United States. In terms of the overall cost of damages, they are: Miami, which is at greatest risk, followed by New York, New Orleans, Tampa and Boston. The other five are: Guangzhou, China; Mumbai, India; Nagoya, Japan; Shenzen, China; Osaka, Japan. In its newly published quantification of present and future flood losses in the world’s 136 largest coastal cities, the bank calculates that the costs of flood damage could rise to $1 trillion a year if coastal cities do not


adapt” (Environmental News Service, 2013, paras 1-4). Guangzhou and Shenzen are in Guangdong Province. Clearly, adaptation on the part of these ten cities is absolutely critical for their survival.

But adaptation is also critical for businesses that operate in these cities and other coastal areas. They need to seriously consider the effect that sea level rise will have on their supply chain if they continue to operate in these cities and other areas prone to flooding as climate disruptions continue to increase. Susceptibility to hurricanes, storm surges, flooding, infrastructure destruction and many other impacts will seriously disrupt supply chains operations. Because of the physical effects of climate change, businesses must begin to adapt and reconsider their outsourcing and off-shoring strategies. It might be time to consider moving operations back home where the environmental and political climate is more secure. There will be political disruption and upheaval that can threaten international operations when climate change results in environmental refugees and migration as well as transportation disruptions and resource shortages. “Switching to domestic suppliers can reduce the risks inherent in long distance transport logistics and supply planning. If procurement of commodities and raw materials from a supplier becomes restricted due to climate-related impacts, the absence of an operational buffer will affect a company’s internal manufacturing operations, placing customer order fulfillment at risk….Companies operating or reliant on a JIT model are more prone to upstream supply shocks. The Thai floods of 2011 represented the insurance industry’s highest recorded flood loss event, with business disruption to over 14,000 companies worldwide. The floods were reported to have widely disrupted the international supply of motor and consumer electronic parts. In the UK, Honda cut production at its Swindon plant by 50% and delayed the launch of a new model. The Thai floods also raised the issue of reliance on clustered industries where similar types of suppliers are grouped in the same region” (Environment Agency, 2013, p. 4). Clearly then, companies will need to consider lean operations and holding inventories as climate change has greater and greater impacts on supply chains. What worked previously under a stable climate, such as JIT models may be unworkable in the future with greater climate uncertainty and transitions to Type II MRP systems may need to be made to build in resilience to production. “There has been a tendency to reduce the cost and inventories in supply chains by a variety of approaches. As a result, supply chains tend to be less resilient to disruptions and have a higher risk exposure. We define supply chain resilience as the ability to quickly respond to unexpected disruptions in supply or demand that can be either natural or manmade” (Schroeder, Goldstein, Rungtusanatham, 2013, p. 245). Climate change is both naturally occurring and manmade in terms of exacerbated effects from increased greenhouse gas emissions that have affected rainfall patterns, the severity of storms, the increasing unpredictability of the weather, glacial and ice sheet melting, decreasing ocean salinity levels from increased ice melt, cloud cover (Rockstrom et al 2009). And as such, changing inventory models from JIT to MRP and actually increasing resources on hand may be necessary to adapt to increasingly common climate-caused disruptive events.

Also important from the Environment Agency (2013) report is the susceptibility to disruption from geographically clustered facilities. Mattel and Walmart for example have large clusters of outsourced factories in Guangdong that are susceptible to flooding and other logistical disruptions due to climate change. To build in resilience and adaptability, companies may wish to employ different factory siting strategies. While economies of scale and collaboration and quality control may be challenged from choosing not to site factories or other facilities in clusters, it could be a necessary adaptation for manufacturing to protect operations from climate


change disruption. Facilities must be located to maximize a firm’s strategic advantage, and new thought will need to be given to what that entails if facility clusters and current facility locations will increasingly subject a firm to a costly disruption of operations.

Additionally, “some engineering and design consultancies are also beginning to respond by taking account of future climate projections in today’s building designs” Environment Agency, 2013, p. 2). This is also important to reduce energy costs and increase sustainability from design impacts, but also to take into consideration building durability. With changing climate conditions, increased rainfall, hurricanes or floods, it is important to consider building design that will be resistant to damage and disruption from weather impacts.

In addition to the physical changes necessary to adapt to climate change in terms of facility location, decision to cluster, decision to outsource or off-shore, and decisions to employ JIT or MRP systems in supply chain management, assessing processes will be critical to maintaining or redesigning operations efficiency, capacity and capability. Embedding sustainability into operations will require process adjustments and changes, but to maintain competitiveness, or even for that matter to remain in business will require innovative thought and coordinated implementation.

Finally, what is critical to understand is that “we are not facing a temporary shock that will quickly pass, but in fact are on the verge of an ‘era of turbulence’, that will feature higher variance in key business parameters: from energy cost, to raw materials and currency exchange rates” (Christopher and Holweg, 2011, p. 65). The disruptions from climate change will only intensify as global warming and sea level rise increase. These types of “shocks” are different from what has been seen in the past like terrorism attacks or oil crises or “dot.com bubbles”, because the shocks from climate change are fundamentally different (Christopher and Holweg, 2011). Supply Chain Management was developed in the 1980s in a period of stability. Everything is changing now in response to climate change, so the models of supply chain management must change, right on down to the accounting equations. Uncertainty creates risk in the supply chain, and with climate change there is much uncertainty as to how to adapt. Climate change is not all doom and gloom, there will be industries that benefit from climate change just as there are tremendous challenges and natural disasters waiting to occur, especially in terms of impacts from sea level rise and coastal flooding. Unfortunately, “very few firms have learned how to build structural flexibility into their supply chains (Christopher and Holweg, 2011, p. 70). “Most supply chains lack the ability to adapt quickly to changed market and environmental conditions. This is primarily because they have been designed with efficiency in mind rather than flexibility in mind” (Christopher and Holweg, 2011, p. 71). Therefore the challenge for all companies and supply chains is to adapt. Sustainability initiatives are a great first step and should be embraced. But companies need a much more holistic approach to climate change and need to understand how it will impact every single piece of company operations. “Companies need to make more effort to understand and evaluate the potential impacts of climate change on their value chain, in both the short term and long term. They should raise awareness internally and train employees across key business functions. They should also ensure that board members are informed and tasked with integrating adaptation strategies into core business processes. And they should develop ‘champions’ who are able to secure and sustain executive-level commitment. Engaging external experts and business partners is a key part of this process. Two core messages should underpin these efforts: 1) adaptation is a core business issue for supply chain security; 2) it is better to manage the issue proactively rather than reactively” (Thorpe and Fennell, 2015, p. 16). In addition, businesses need to ask their suppliers about the current


climate trends they are experiencing and the impacts from them. Businesses “might be surprised by the extent to which changing weather patterns have already affected their suppliers” (Thorpe and Fennell, 2012, p. 16). Businesses need to embrace CSR up and down their supply chain by building more stable relationships with their suppliers and investing in their suppliers. “For companies, this is also about protecting security of supply—building relationships with producers based on trust, and enabling those producers to continue as suppliers in the long run” (Thorpe and Fennell, 2012, p. 16). To that end, companies need to support community development and environmental sustainability, which are key components of resilience, in their supplier networks. Especially in terms of agriculture “investing in farmers’ adaptive capacity is critical to ensuring their long-term viability as suppliers” (Thorpe and Fennell, 2012, p. 17), which in turn will help ensure the long-term viability of the parent company.

Climate change is a major disruptor. Those companies that can adapt their supply chains and become resilient at every level will be the ones that maintain or gain competitive advantages and thrive in the coming decades. It might take the same focus and commitment that the United States demonstrated when it put a man on the moon in 1969. But to do so, first Carter and Easton’s questions must be answered: what can be done for us, as a company, to thrive in the next three, five, ten and twenty years and beyond? A focus on the financials in the next quarterly report won’t increase business survivability.


References

Barlow, M. (2007). Blue covenant: the global water crisis and the coming battle for the right to water. New York, New York: The New Press.

Beddington, J. (2009). Food, energy, water and the climate: A perfect storm of global events. Retrieved April 28, 2015, from Gov.UK: http://webarchive.nationalarchives.gov.uk/20121212135622/http://www.bis.gov.uk/assets/goscience/docs/p/perfect-storm-paper.pdf

Biermann, F., & Boas, I. (2010, Feburary). Preparing for a warmer world: towards a global governance system to protect climate refugees. Global Environmental Politics, 10(1), 60-88.

Brickman, C., & Ungerman, D. (2008, July). Climate change and supply chain management. The McKinsey Quarterly, 1-2.

Business Insider Science. (2015, April 22). Animated map shows what the US would look like if all the Earth's ice melted. Retrieved April 30, 2015, from Business Insider: http://www.businessinsider.com/what-us-looks-like-if-earths-ice-melted-animated-map-2015-4

Carter, C. R., & Easton, P. L. (2011). Sustainable supply chain management: evolution and future directions. Internaiontal Journal of Physical Distribution & Logistics Management, 41(1), 46-62.

Christopher, M., & Holweg, M. (2011). Supply Chain 2.0: Managing supply chains in the era of turbulence. International Journal of Physical Distribution & Logistics Management, 41(1), 63-82.

Craighead, C. W., Blackhurst, J., Rungtusanatham, M. J., & Hnadfield, R. B. (2007, February). The severity of supply chain disruptions: Design characteristerics and mitigation capabilities. Decision Sciences, 38(1), 131-156.

Eccles, R. G., Ioannou, I., & Serafcim, G. (2012, March). The impact of corporate sustainability on organizational processes and performance. Retrieved April 28, 2015, from National Bureau of Economic Research: http://www.nber.org/papers/w17950

Environment Agency. (2013, November). Supply Chains. Retrieved April 28, 2015, from Climateuk.net: http://media.climateuk.net/sites/default/files/Supply%20Chains.pdf

Environmental News Service. (2013, September 3). 10 Coastal Cities at Greatest Flood Risk as Sea Levels Rise. Retrieved May 1, 2015, from Environemnt News Service: http://ens-newswire.com/2013/09/03/10-coastal-cities-at-greatest-flood-risk-as-sea-levels-rise/


Farbotko, C., & Lazrus, H. (2012). The first climate refugees? Contesting global narratives of climate change in Tuvalu. Global Environmental Change, 22, 382-390.

Feng, S., Krueger, A. B., & Oppenheimer, M. (2010, August 10). Linkages among climate change, crop yields and Mexico-US cross-border migration. Retrieved April 28, 2015, from Proceedings of the National Academy of Sciences of the United States of America: http://www.pnas.org/content/107/32/14257.full.pdf

Halldorsson, A., & Kovacs, G. (2010). The sustainable agenda and energy efficiency: Logistics solutions and supply chains in times of climate change. International Journal of Physical Distribution & Logistics Management, 40(1/2), 5-13.

Jira, C. (., & Toffel, M. W. (2013, March 1). Engaging supply chains in climate change. Manufacturing & Service Operations Management, Articles in Advance, 1-19.

Li, D., Wang, X., Chan, H. K., & Manzini, R. (2014). Sustainable food supply chain management. International Journal of Production Economics, 152, 1-8.

Marino, E. (2012). The long history of environmental migration: Assessing vulnerabiilty construction and obstacles to successful relocation in Shishmaref, Alaska. Global Environmental Change, 22, 374-381.

Meixell, M. J., & Luoma, P. (2015). Stakeholder pressure in sustainable supply chain management. International Journal of Physical Distribution & Logistics Management, 45(1/2), 69-89.

Qian, W. (2013, Februrary 7). China's sea level continues to rise. Retrieved April 30, 2015, from China Daily: http://www.chinadaily.com.cn/cndy/2013-02/27/content_16258964.htm

Rockstrom, J., Steffen, W., Noone, K., Persson, A., Chapin, F. S., Lambin, E., . . . Rodin. (2009). Planetary boundaries: Exploring the safe operating space for humanity. Ecology and Society, 14(2), 32. Retrieved April 29, 2015, from http://www.ecologyandsociety.org/vol14/iss2/art32/

Schroeder, R. G., Goldstein, S. M., & Rungtusanatham, M. J. (2013). Operations Management in the Supply Chain: Decisions and Cases (Sixth ed.). New York: McGraw-Hill Irwin.

Smith, T. M. (2013). Climate change: corporate sustainability in the supply chain. Bulletin of the Atomic Scientists, 69(3), 43-52.

Solomon, S. (2010). Water: the epic struggle for wealth, power, and civilization. New York, New York: HarperCollins.

Thorpe, J., & Fennell, S. (2012, June). Climate Change Risks and Supply Chain Responsibility. Retrieved April 28, 2015, from Oxfam:


https://www.oxfam.org/sites/www.oxfam.org/files/file_attachments/dp-climate-change-risks-supply-chain-responsibility-27062012-en_5.pdf

United Nations Department of Economic and Social Affairs. (2013, June 13). World population projected to reach 9.6 billion by 2050. Retrieved May 1, 2015, from United Nations: https://www.un.org/en/development/desa/news/population/un-report-world-population-projected-to-reach-9-6-billion-by-2050.html

Urdan, M. S. (2011, Februrary 8). Water wars or water peace, part I. Retrieved April 28, 2015, from http://www.insidegov.org/?p=534

Urdan, M. S. (2011, February 8). Water wars or water peace, part II. Retrieved April 28, 2015, from Inside Government: http://www.insidegov.org/?p=539

Yaodong, P. D. (2012, February 16). Adapting to Climate Change in China: Impact of Sea Level Rise on Guangdong. Retrieved May 1, 2015, from UK Department for International Development: http://r4d.dfid.gov.uk/pdf/outputs/accc/sea-level-rise-guangdong_feb2012.pdf

urdan final paper--sustainability, climate change and supply chain disruption, corrected and revised

Documents