The answer’s complex: Supply chain adaptation to climate change
Cyclone Debbie in March pushed mining commodity customers to look elsewhere as major rail lines and mines in Queensland were shut.
The cyclone also damaged 20% of winter crops and we’re still feeling the impact in fruit and vegetable prices.
With the current Atlantic hurricane season in unprecedented full blast and predictions of more frequent, intense weather events associated with continuing climate change, it begs the question: How can supply networks for key commodities like food and minerals continue to function in the face of catastrophic natural events?
Long supply chains in a global market
Today’s global markets make for increasingly long and more complex supply chains to reach distant domestic and international markets.
To reduce handling costs and time-to-market, many businesses have tried to simplify and shorten these supply chains to make them leaner and more efficient – an approach that some businesses also use to reduce carbon emissions.
But this approach can have its problems. When a supply network has been pared right back to become ‘extra lean’, sudden events such as severe weather can massively disrupt the flow of goods.
What will happen, for example, when 1-in-100-year floods occur every 20 years, or even every 3 years, damaging crops and mines, blocking roads and railways, causing power disruptions, and shutting down processing and shipping operations? Will any of our supply chains work?
Simple vs complex
Together with colleagues with expertise in climate adaptation, ecological modelling, agriculture systems, geology, social science and marine sciences, Dr Lilly Lim-Camacho and Dr Eva Plaganyi-Lloyd simulated climate-related disruptions to six different supply chains in Australia’s fisheries, agriculture and mineral sectors in their most recent research.
They wanted to compare a ‘complex’ supply chain with a ‘simple’ one for each of the three sectors. Relative to simple supply chains, complex ones have more ‘nodes’ – where the sourcing, processing, handling and distribution of goods happens – and more ‘links’ in the form of transactions between nodes.
The supply chains that the team selected from the three sectors were:
- fisheries: the Western Australian western rock lobster fishery (simple), and Northern Australia’s prawn fishery (complex)
- minerals: diamond production from Argyle, WA (simple), and iron ore production from the Pilbara region, WA (complex)
- agriculture: irrigated rice production (simple) from the Riverina irrigation area, and a mix of irrigated and dryland rice production from both the Riverina and smaller, non-irrigated catchments in northern NSW and Queensland (complex).
Diversity adds resilience
Critically, the results of the modelling showed that more complex, more diverse supply chains, with a large number of nodes and links, tend to have more resilience to the extreme weather events predicted under climate change.
Dr Lim-Camacho notes that this finding runs counter to commonly accepted business management practice that simpler supply chains are better for business.
“For a long time, businesses designed supply chains to make them more efficient, in terms of reducing time lags, so they made them super-lean. They also simplified them, which seemed to be a good idea,” Dr Lim-Camacho says.
“In light of our research on unpredictable climate disruptions, those simple supply chains appear to be more at risk than more complex and diversified ones.”
But there are limits to climate adaptation.
“The results also show that all chains, regardless of complexity, will have diminished resilience as disruptions become more frequent, particularly if key elements are impacted on an annual basis,” she adds.
“The extreme climate-driven events we modelled are the ones that change systems. If these occur repeatedly, they have the potential to wipe out industries, because of the damage they do to supply chains.”
The weakest link
The CSIRO research highlighted the importance of identifying ‘key elements’ – for example, an airport, or a remote road or rail link – that are more sensitive to disruption than other elements within the supply chain.
“It’s the node or link that, if affected, will disrupt the whole supply chain disproportionately more than the other elements,” says Dr Lim-Camacho. “If you keep affecting that one, you’re more likely to break down the whole chain.”
As well as identifying the critical role of key elements, Dr Lim-Camacho’s team developed four key metrics or indices that businesses could use to monitor and assess the performance of supply chains before and after climate-related disruption.
The four metrics were evenness, resilience, continuity of supply and climate resilience.
Together with the key element metric, these indices provide a clearer picture of how a supply chain might perform under disruption.
Opportunity for industry
Dr Lim-Camacho hopes to apply both these findings – the notion of key elements, and the use of the four metrics to assess resilience – to develop decision-making tools that industry could use to redesign and monitor supply chains to better adapt them to climate change.
“Too often, businesses learn from experience if, and how, their supply chains can withstand and recover from cyclones, storms, floods or drought, transport, with little insight on proactively developing climate-resilient supply chains,” she says.
“By looking at supply chains more systematically, we’ve identified some metrics that can be monitored and reported on, and have a conversation around them.
“We’d like industry to take on the application of this work, because in the end, it’s in their interest to keep their supply chains resilient and adapted in a changing climate.”
Read more about the research in Global Environmental Change.