In 2024, the impacts of global warming and climate change are undeniable. Since the early 1960s, the Ecological Threat Register has shown a ten-fold increase in the number of natural disasters that the world is experiencing. With how complex the global supply chain is, a natural disaster in any part of the world can create major disruptions for companies around the globe.
In the last decade, the number of natural disasters that cost over a billion dollars to the supply chain has also increased drastically, with 2020 symbolising a recent peak. As the number of major natural disasters increases each year, businesses must learn to adapt to this new normal and implement strategies to mitigate major disruptions in their supply chain.
Taking proactive steps to understand the risk of natural disasters and how businesses can manage these threats helps to achieve a high level of supply chain resilience. With resilience comes the ability to avoid major disruptions, keep commerce flowing, and create a strong network of supplier links across the globe.
In this article, we’ll explore the actionable strategies that businesses can use to proactively manage supply chain disruptions resulting from natural disasters. We’ll touch upon proactive risk management and outline how your business can leverage AI and Prewave solutions to create a highly resilient supply chain.
Understanding Supply Chain Vulnerabilities to Natural Disasters
Common natural disasters, such as hurricanes, floods, wildfires, and earthquakes, can all pose significant problems for supply chains. Any natural disaster can create localised issues that prevent workers from accessing their workplaces, impede the movement of goods, and cause lasting infrastructural damage that frustrates efficiency.
The global supply chain relies on an intricate network of supplier connections to ensure that goods are delivered on time. If any one part of this system is compromised, everything, both upstream and downstream, will feel the effects. Research shows that supply chain disruptions, like those caused by natural disasters, can incur financial costs that average between 6-10% of annual revenues.
Beyond just economic damages, companies that suffer from supply chain disruptions can also experience reputational damages. As customers become more frustrated with slow delays or major disruptions, they become less likely to continue to work with a business.
The risk from natural disasters encompasses impacts in the reputational, economic, and even supplier-relationship sense, making this a major concern for any business that is looking to forge a long-lasting and stable supply chain.
The Role of AI in Mitigating Supply Chain Risks
Artificial intelligence technology has significantly advanced over the past decade, now offering businesses a highly comprehensive method of analysing vast quantities of data and delivering tailored, actionable insights related to business operations. When applied to supply chain risk management, artificial intelligence can help predict and manage risks that arise from natural disasters.
Artificial intelligence offers a high degree of data collection and analysis. By collecting real-time data from sensors, satellites, and historical records, AI tools can build up a comprehensive understanding of the relative risk of a natural disaster and how it will impact suppliers in that region and across the world.
When paired with machine learning algorithms, AI systems can forecast natural disasters, identifying patterns to predict certain future events. With predictive modelling, businesses can create simulations and then develop strategies to avoid major disruptions in these situations. The feasibility of these simulations will help businesses understand whether certain events will be a significant problem for their business.
By identifying events that have a high risk of disruption, businesses can then develop strategies to mitigate them, putting them in the best possible position to overcome supply chain disruptions and achieve resilience.
Artificial intelligence provides a more comprehensive approach to managing and responding to emerging natural disaster threats. The efficacy of AI tools provides the following benefits to supply chain businesses:
- Speed and accuracy: AI tools can rapidly process data, leveraging this ability to create precise predictions in record time.
- Proactive measures: The foresight that AI offers to businesses enables a high degree of early warning, allowing them to take proactive measures to prevent supply chain disruptions.
- Continuous improvement: AI models are continuously refining their skill sets and developing more expansive capabilities. Early integration of AI into supply chain management will only enhance accuracy in the future.
Effective use of artificial intelligence tools in supply chain management is one of the most significant advancements a business can make on its journey to creating a resilient supply chain.
Practical Steps to Proactively Manage Supply Chain Disruptions
A proactive and streamlined system for managing supply chain disruptions, especially those that can stem from natural disasters, does not materialise overnight. On the contrary, businesses must use the resources they have available to create effective risk management systems.
Here are our leading steps to proactively manage supply chain disruptions.
Conduct Comprehensive Risk Assessments
The first step to take when aiming to proactively manage supply chain disruptions is to understand the full context of your supply chain and all the links it includes. Conducting comprehensive risk assessments will help to increase visibility in your supply chain, providing insight into how critical certain links are and what risks may arise that impact them.
Where possible, identify the potential risk that natural disasters can pose to each part of your supply chain. By evaluating the vulnerability of each link in the supply chain, you can better plan for how to avoid any one point becoming critical to your entire operation.
For example, you can leverage Prewave’s real-time risk intelligence platform to gather information and analyse risk data. This useful insight will offer the context needed to understand the risk rating of each supplier. From there, you’ll be able to develop plans to overcome any potential disruptions.
Develop a Robust Disaster Response Plan
No matter how prepared a business is, disasters will happen – they are inevitable. Look, for example, at the COVID pandemic, which caused major supply chain disruptions across the globe. While we cannot eradicate disasters, we can prepare response plans that allow us to minimise the impact they have on our supply chain.
Create detailed action plans for each type of natural disaster, outlining what would occur, who would be impacted, and what you can do to mitigate the worst effects of that disruption. Creating a response team and allocating roles will help to delegate work, ensuring your business has accountability over who will initiate disaster response plans when certain situations arise.
Implementing communication protocols at this stage, especially by using Prewave’s automated systems to notify stakeholders, will ensure that everyone is kept in the loop during disaster events.
Invest in AI-Driven Predictive Technologies
As demonstrated above, AI-driven predictive technologies are one of the most effective tools that businesses can rely on when creating a resilient supply chain. By adopting Prewave’s predictive analytics tools, businesses can create an early warning system that keeps them informed ahead of time.
Constant monitoring and data processing with AI tools will help businesses make informed decisions ahead of time, decreasing threat response times and forging more effective response pathways.
Enhance Supply Chain Flexibility and Redundancy
Another important aspect to consider when building a resilient supply chain is the necessity of having secondary suppliers. When you construct a supplier relationship without any backups, they become a single point of failure in your supply chain. If a disruption impacts their production, your whole supply chain could become compromised.
To avoid these scenarios, businesses should endeavour to diversify suppliers and logistics partners, reducing dependency on any one single source. Establishing alternative transportation routes and inventory story locations will mitigate many of the worst effects of natural disasters, as you always have a backup plan ready to go.
Diversification and the development of backup strategies are vital parts of creating a resilient supply chain.
Implement Continuous Monitoring and Improvement
While constructing and implementing a risk assessment and mitigation strategy is important, there’s always room to grow and improve. Conducting regular reviews and risk assessment updates will help ensure your business is always ready and actively adapts to changing global contexts.
By conducting drills and simulations, you can measure your efficacy in responding to certain challenges. With Prewave’s suite of solutions, continuous monitoring and improvement is as easy as possible, with automated AI systems helping to streamline ongoing risk monitoring and adaptation.
From Risk to Resilience: Prewave’s Success in Action
In environments where there is a high degree of risk, effective monitoring and mitigation of risk factors can be the difference between an effective supply chain and one that experiences major delays.
To demonstrate this in action, let’s explore how Prewave’s solutions helped Kärcher improve risk reaction times by 3 days and experience a 40x reduction in procurement efforts.
Challenges: Taiwan and the Semiconductor Industry
Taiwan is a global epicentre for technological development, manufacturing a total of 63.8% of the world’s semiconductors. These semiconductors are used in almost every single electronic device we use, ranging from mobile phones to fridges, making them a fundamental technology in the tech field.
Yet, Taiwan also exists within a complex political and geographical context. With fraught political relationships with China, potential disruptions due to geopolitical tensions can break out at any minute, disrupting the semiconductor supply chain and causing delays in tech production around the world.
Equally, Taiwan’s location along the Pacific Ring of Fire means that the island nation is prone to typhoons, earthquakes, and other natural disasters. In April 2024, Taiwan experienced its most devastating earthquake in 20 years, striking with a magnitude of 7.2.
The essential nature of Taiwan in the production of semiconductors has meant that companies from around the world have forged necessary supply links with the country. There are around 237,000 Tier-3 connections to Taiwanese firms and over 112,000 Tier-2 connections from the US alone.
With the complexity of risk factors and the critical nature of maintaining these links open, suppliers must achieve a comprehensive level of visibility over their supplier connections to enhance the resilience of their supply chain.
Solutions: How Prewave Solutions Provide Transparency and Visibility into the Supply Chain
The first step toward effectively managing the potential supply chain risks that countries like Taiwan is face to establish comprehensive supply chain mapping and predictive analytics. Prewave partnered with Kärcher to enhance visibility into their supply chain, providing insight into each tier of connections and the risk factors that are at play in relation to each individual supplier.
By leveraging artificial intelligence tools, Prewave is able to create a detailed map of global supply networks, offering a clear view into Tier-N suppliers that support Taiwan’s industry. By offering actionable insights related to each supplier, Prewave is able to identify risks before they transform into disruptions, giving businesses enough time to implement contingency plans and to develop a strategy to mitigate the disruption.
The visibility that Prewave provided into the supply chain for Kärcher allowed them to improve risk reaction times by three days, representing a significant economic saving and a radical enhancement to the typical risk reaction response protocol. Equally, Kärcher achieved a 40x reduction in procurement efforts, as Prewave’s automated tools were able to generate strategies to protect against disruptions and identify low-risk suppliers.
Final Thoughts: Creating a Resilient Supply Chain With Prewave
As natural disasters become a rising concern across the globe, the most effective method of building resilience in your supply chain is to understand these risk factors and manage them effectively. Turning to artificial intelligence-enhanced supply chain risk management solutions like Prewave offers a high degree of visibility over your supply chain, giving you the critical context you need to make effective decisions and mitigate disruptions.
A resilient supply chain will help prepare your business for every possible situation that could occur. Enterprises must diversify to secondary suppliers and implement proactive steps to mitigate the disruptive impacts of geopolitical conflicts and natural disasters.
Explore Prewave’s entire suite of solutions to create a visible, transparent, and resilient supply chain today.
