The past 50 years have represented a tipping point in the history of natural disasters. In 1970-1979, only 711 natural disasters were recorded across the globe. Yet, in 2000-2009, this figure skyrocketed to over 3536. In recent years, we’ve seen record-breaking figures, with 2022 being the year with the most natural disasters to date, coming in at over 400.
400 natural disasters—a figure that represents half a decade of events in the 1970s—are now happening every single year. The steep rise in natural disasters is also closely connected to the damage they cause, with entire supply chains being wiped out, significantly delayed, or irreversibly backed up due to these events. The financial costs of natural disasters are increasing every year, with businesses being too slow to adapt to these events or using reactive strategies that leave them without enough time to plan effectively.
Source: Number of recorded natural disaster events from 1900-2023.
The next frontier in supply chain resilience is being able to understand these natural disasters, notice their formation, and adapt ahead of time to reduce their disruptive impact to nothing. Artificial intelligence (AI) solutions are at the cutting edge of this vision, allowing businesses to proactively mitigate risks and prevent multi-million-dollar disruptions before they occur.
Tools like Prewave are emerging as a powerful solution that allows businesses to predict and mitigate risks in real time, streamlining natural disaster response and strategic planning.
The Growing Threat of Natural Disasters and Their Financial Impact
Natural disasters have a direct connection to financial damages, often disabling the systems that businesses use to produce or rupturing their supply chain. Areas that are prone to frequent natural disasters are most exposed to these financial losses. For example, in 2023, there were 28 climate disasters that impacted the Gulf Coast. Across these events, businesses paid over $93.1 billion due to damages and losses caused by the environmental events.
Due to the deeply interconnected nature of the modern supply chain, delays or disruptions in one facility can create a ripple effect across entire industries. The inability for raw materials to enter the supply chain could cause major increases in supply costs, delays for consumers, and losses for businesses. Especially in sectors that rely on the constant flow of products, like retail, energy, and manufacturing, any small disruption from natural disasters can create drastic consequences.
Particularly in the United States, hurricanes are often the natural disasters that have the most extreme financial consequences. While the recent Hurricane Milton is still an unfolding event, experts suggest that it will cost businesses over $50 billion. This will place Hurricane Milton alongside previous hurricanes that have exceeded over $50 billion in damages.
Source: The total cost of named hurricanes in the USA.
The cost of natural disaster events mainly stems from three central factors:
- Unplanned downtime: When businesses do not have enough time to plan how to respond to natural disaster events, they may have to spend days or weeks creating a new strategy. Implementing strategic changes can cost huge amounts of money, while also losing out on precious time that the business could be operating.
- Lost sales: If a business is unable to product or deliver during natural disasters, then it is cut off from the consumer. Any sales or purchases during this period or that were meant to be delivered will have to be put on hold, creating delays and frustrating customers. The inability to process new orders can also create financial damages in lost sales.
- Damaged infrastructure: Natural disasters can damage infrastructure to a point where it becomes unusable and has to be completely rebuilt. This process can create further delays in the supply chain and cause businesses to lose out on even more capital.
With the rising number of natural disasters across the globe each year, businesses must adapt to these seemingly unpredictable events. To do that, we must move away from traditional response management strategies and embrace the power of artificial intelligence systems.
How AI-Powered Disaster Prediction Works
Artificial intelligence tools differ from traditional natural disaster monitoring systems as they use a plethora of real-time data. Instead of focusing on one or two sources, AI models work with all the available data, processing vast quantities of information concurrently. From weather patterns and satellite imagery to real-time environmental data, AI systems pull from everything they can to create a comprehensive picture of a natural disaster event.
By achieving this level of real-time data insight, AI tools can pinpoint the moment that a natural disaster event begins to emerge. With this level of agility, businesses will have much more time to understand what the potential impact of a natural disaster event would be and how they could then create a plan to mitigate its worst effects.
AI can draw from these sources and rapidly process data to detect, catalogue, and suggest a response to risk faster and more accurately than traditional methods. AI stands as a direct solution to the unpredictability of these costly natural disaster events, offering time, foresight, and the ability to create a comprehensive plan to keep a business safe from harm.
Here are some of the main features of AI-powered tools:
- Real-time monitoring: AI systems can continuously analyse data from various sources to identify anomalies in weather patterns and detect the risk of natural disaster as quickly as possible.
- Predictive analytics: Artificial intelligence can forecast the potential disruptions that a supply chain may face ahead of time, giving them extra days or entire weeks to prepare an effective response, adjust operations, and reroute shipments to avoid the disruption completely.
- Automated alerts: AI systems are able to send out real-time warnings to key decision-makers, alerting all necessary parties about the potential risks of a natural disaster ahead of time.
While traditional methods are able to detect a disaster, they often leave a company without enough time to leverage data-driven decisions and create an effective strategy to mitigate the worst effects of a natural disaster. An AI-enabled approach can accelerate threat detection and response, creating a pathway to reduce the severity of a natural disaster’s impact on your supply chain.
Financial Benefits of Using AI-Powered Risk Intelligence Software
Any disruption to the global supply chain, especially those that stem from unexpected natural disasters, causes massive financial damages to companies. In 2021, the average company in the United States lost $228 million USD due to supply chain disruptions.
Small delays can lead to missed deadlines, an inability to meet consumer demands, and the loss of productivity. Tackling these disruptions, which we’ve shown often come from natural disasters, is one of the most effective ways of unlocking the financial benefits of AI-powered systems.
There are numerous ways that using AI-powered risk intelligence software can save a business money:
- Reduce lost production time: When natural disasters impact central sites of production, businesses are unable to operate at maximum capacity and have to reduce their capabilities. By using AI-powered risk intelligence, businesses can chart where natural disasters are likely to hit and reduce their operations in that area. They can cover this change by increasing production at different sites, meaning that the natural disaster no longer directly impacts their overall productivity. Without any loss in productivity, a business is able to avoid any financial losses of a natural disaster.
- Avoid logistical failures: When unforeseen natural disasters cross logistics pathways, businesses put their staff and cargo at risk. By using AI to map the pathway of disasters like hurricanes, businesses can avoid these risks and ensure that none of their assets are lost during natural disaster events. An example of this would be a global electronics company employing AI to reroute shipments away from hurricane-effected areas, saving $3 million in potential losses.
- Prevent inventory damage: Understanding where natural disasters are most likely to strike allows businesses to preemptively move stock out of harm’s way. Using AI risk assessment tools, organisations could receive notification that a flood may impact stock in a warehouse. With enough time to act, the company could move the stock out of the warehouse to a more secure location, avoiding any inventory damages and loss of product.
In all of these cases, the deployment of AI tools provides significant cost reductions during natural disasters and helps businesses sustain operations despite major events. By enabling an AI-first approach, organisations can prepare for natural disasters with agility, precision, and enough time to implement any mitigative actions needed.
Predictive analytics and using AI in disaster management allow businesses to achieve tangible cost savings.
Building Resilient Supply Chains with AI
The use of artificial intelligence tools in the supply chain reflects a wider focus of building resilient supply chains. With their precise use of predictive analytics, the additional time and warning that AI systems can offer in the face of natural disasters allow businesses to overcome challenges and sustain operations.
Artificial intelligence in the supply chain is vital for building resilience. AI provides numerous benefits for both managing natural disasters and also for creating stronger supply chains as a whole:
- Enhanced supply chain visibility: Artificial intelligence tools provide complete visibility across multi-tiered supply chains. In natural disasters, they are able to identify which parts of the system are at risk and what steps a business should take to protect themselves. A full and extensive visibility into the supply chain helps businesses to safeguard key assets, ensure continuity in a crisis, and sustain productivity.
- Improved decision-making during crises: AI tools are able to process vast quantities of information, using that insight to offer real-time views of how disaster events will and are evolving. Supply chain managers can leverage the data-driven insight of AI tools to make more precise choices about which facilities to close, where to reroute operations, or how best to restructure supply chains during moments of risk.
- Long-term strategic planning: While this article has mainly focused on AI in disaster management and risk prediction, its uses in the supply chain go far beyond this. AI allows businesses to structure their business for long-term disaster preparedness. By identifying central vulnerabilities in the structure of a supply chain, businesses can adjust their strategies to cover these vulnerabilities ahead of time. Reducing dependence on high-risk suppliers or products from areas with high natural disaster risk will help to future-proof a business and ensure its continuity.
If visibility is central to sustained resilience in the supply chain, then artificial intelligence systems are the main tool businesses can use to achieve full control over their supply chain. Artificial intelligence systems centralise agility and future-planning, helping businesses to better prepare for the future and react to present threats.
Across threat preparation, risk detection, and disaster planning, AI systems are central to how leading businesses manage their supply chains effectively.
Final Thoughts
Supply chain risk intelligence software provides businesses the visibility they need for both short-term crisis management and long-term resilience planning. It simultaneously offers businesses the ability to reduce the cost of disaster events, proactively manage risk, and enhance their supply chain resilience.
By adopting AI-driven risk intelligence tools ahead of time, businesses can better prepare for future disasters and ensure the longevity of their company. AI systems also help in other areas of risk production, spanning from supplier monitoring to identifying potential areas of risk in the wider supply chain system.
Prewave is an industry leader in AI-driven risk prediction, management, and mitigation. Reach out to the team today to explore how Prewave’s solutions can help your business stay ahead of unpredictable risks.
