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THE ROBERT GORDON UNIVERSITY

ABERDEEN BUSINESS SCHOOL


Climate proofing supply chains
I dentification of climate risk indicators
to improve the supply chain risk management process ( SCRMP)
Dennis Peter Bours
The Robert Gordon University, Aberdeen, UK
Aberdeen Business School
MSc International Purchasing and Supply Chain Management
Submission Date: 27 April 2014.
End result: MSc w honors
THE ROBERT GORDON UNIVERSITY
ABERDEEN BUSINESS SCHOOL
Climate proofing supply chains
I dentification of climate risk indicators
to improve the supply chain risk management process ( SCRMP)
Dennis Peter Bours
The Robert Gordon University, Aberdeen, UK
Aberdeen Business School
MSc International Purchasing and Supply Chain Management
Submission Date: 27 April 2014.
End result: MSc w honors
THE ROBERT GORDON UNIVERSITY
ABERDEEN BUSINESS SCHOOL
Climate proofing supply chains
I dentification of climate risk indicators
to improve the supply chain risk management process ( SCRMP)
Dennis Peter Bours
The Robert Gordon University, Aberdeen, UK
Aberdeen Business School
MSc International Purchasing and Supply Chain Management
Submission Date: 27 April 2014.
End result: MSc w honors
Page ii
Abstract
Purpose:
What makes complex supply chains leaner and more responsive in a stable
environment also increases their vulnerability to low-probability/high-impact
risk events, like climate risk events. High levels of uncertainty of impact and
occurrence of climate risk events make it hard for managers to guide their
organization to take appropriate action.
The main research objective is to study climate risks and related indicators
as part of the Supply Chain Risk Management Process (SCRMP), to facilitate
the development of risk management plans to improve supply chain
resilience towards physical climate change and weather risk sources, to be
called climate proofing. This research intends to complement existing
research on supply chain risk management (SCRM) indicators and risk
assessment, specifically focusing on climate risk events.
Methodology:
A mixed-method research approach was used, applying quantitative and
qualitative approaches to develop different perspectives, triangulate
research findings and reduce the risk of method bias. An iterative research
design was developed in which stages of data collection - by means of a
stepped literature review, interviews and an internet-mediated
questionnaire - and reflection by a specially established research expert
panel are successively utilized to inform, verify and refine subsequent
research stages.
Findings:
71% of respondents (strongly) agrees that supply chains have been more
than marginally impacted by climate risk events over the past three years;
though risk appetite is high and only 23.4% rates the impact of previous
events on their supply chain as 'unacceptable'.
Those impacted in the past rate the likelihood of future impacts higher, and
probably more realistic, and put more emphasis on contingency planning
and pre-incident preparation. Past impacts do not make people feel less
empowered in relation to their organization's risk management.
Page iii
Climate risk likelihood indicators need to be place-based and contextual.
Climate risk impact indicators should be a mix of cost, time and social
indicators. The appropriateness of specific indicators and focus on particular
climate risks depend very much on the individual company, the sector in
which it operates, the operational environment and the geographic and
climatic contexts in which its supply chains function.
Keywords:
Supply chain risk management
Climate risk events
Climate risk indicators
Risk assessment
Supply chain resilience
Climate proofing
Page iv
Acknowledgements
I don't think we're yet evolved to the point where we're clever enough to
handle a complex a situation as climate change. We're very active animals.
We like to think: Ah yes, this will be a good policy, but it's almost never
that simple. The inertia of humans is so huge that you can't really do
anything meaningful.
James Lovelock, scientist, environmentalist and futurologist, 2010.
1
I would like to thank my RGU research supervisor Ms. Carol Air, the expert
panel members, Mr. Colin Airdrie, Prof. Gyngyi Kovcs, Mr. Ira Feldman,
Dr. J. Kevin Watson, Ms. Joyce Coffee, Dr. Laura Birou, Mr. Michael Keizer,
Ms. Nancy Gillis, Mr. Peter Jones, Mr. Peter Murray, Dr. Sander de Leeuw,
Prof. Steve Leon, Dr. Steven Dunn and Mr. Taylor Wilkerson, and special
data analysis reviewer Mr. Joris Vandelanotte for their time, guidance,
critical feedback and patience.
A special word of thanks to my wonderful wife, Martine, for coping with this
academic endeavour next to our already packed work schedules and lives.
1
Hickman 2010.
Page v
Table of Contents
Abstract ............................................................................................. ii
Acknowledgements ............................................................................. iv
Table of Contents ................................................................................ v
List of Figures ................................................................................... vii
List of Tables ..................................................................................... ix
List of Appendices............................................................................... ix
List of Abbreviations ............................................................................ x
INTRODUCTION...................................................................................1
I.1 Background to the Research.......................................................... 1
I.2 Overview of the Research Problem.................................................6
I.3 Research Questions......................................................................7
I.4 Objectives of the Study ................................................................ 8
I.5 Research Rationale ......................................................................8
I.6 Limitations..................................................................................9
I.7 Outline of the Report.................................................................. 10
GLOSSARY........................................................................................ 11
G.1 Climate Change Technical Terms and Definitions........................... 11
G.2 Risk Management Technical Terms and Definitions........................ 13
CHAPTER 1 LITERATURE REVIEW...................................................... 17
1.1 Introduction ............................................................................. 17
1.2 Risk Management...................................................................... 17
1.3 Supply Chain Risk Management .................................................. 20
1.4 Supply Chain Risk Management Process....................................... 29
1.5 Supply Chain Risk Assessment .................................................... 29
1.6 Climate risks and their consequences........................................... 31
1.7 Climate risk indicators ............................................................... 37
Page vi
1.8 SCRM and Management Decision-Making...................................... 41
1.9 A critical note on (risk) perception............................................... 46
CHAPTER 2 RESEARCH METHODOLOGY ............................................. 48
2.1 Introduction ............................................................................. 48
2.2 Literature Reviews..................................................................... 56
2.3 Expert Panel Interviews ............................................................. 59
2.4 Internet-Mediated Questionnaire................................................. 63
2.5 Expert Panel Reviewing.............................................................. 68
2.6 Data Analysis............................................................................ 69
2.7 Generalizability of Findings ......................................................... 70
CHAPTER 3 DATA FINDINGS............................................................. 71
3.1 Introduction ............................................................................. 71
3.2 Expert panel interviews.............................................................. 72
3.3 Internet-mediated questionnaire ................................................. 84
3.4 Summarizing the results per research objective .......................... 109
CHAPTER 4 DISCUSSION AND REFLECTION ..................................... 114
4.1 Introduction ........................................................................... 114
4.2 Critical analysis towards the research objectives ......................... 114
4.3 Critical analysis towards the research design .............................. 116
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS....................... 118
5.1 Conclusions towards the research objectives............................... 118
5.2 Impact of the study................................................................. 121
5.3 Recommendations for future research........................................ 121
LITERATURE LIST ............................................................................ 123
FURTHER READING.......................................................................... 152
Page vii
List of Figures
Figure 1: The triple bottom line concept .................................................4
Figure 2: The ISO 31000 risk management process ............................... 20
Figure 3: Supply chain trends and climate risk ...................................... 22
Figure 4: Hazards, risks and consequences ........................................... 24
Figure 5: Example of a risk matrix with risk levels ................................. 25
Figure 6: Risk matrix, including type of action in case of a risk event ....... 25
Figure 7: Operational levels, risk origin and level of control .................... 28
Figure 8: A comprehensive supply chain risk management process
model .............................................................................. 30
Figure 9: Supply chain risk assessment flowchart .................................. 31
Figure 10: Major global risk events 1970-2012...................................... 32
Figure 11: Average total economic losses (USD) per natural
catastrophe .................................................................... 33
Figure 12: Risk sources of global supply chain disruptions ...................... 34
Figure 13: Risk matrix, including climate risk events.............................. 35
Figure 14: Risk treatment options........................................................ 45
Figure 15: Luyt's 'Measurement development, validation, revision
framework' ....................................................................... 50
Figure 16: Simplified version of Newman, Lim and Pinedas Mixed
methods research interactive continuum.............................. 51
Figure 17: The iterative mixed-method research design ........................ 52
Figure 18: Stepped literature review approach ...................................... 57
Figure 19: Link between researcher and respondents............................. 64
Figure 20: Questionnaire design process .............................................. 65
Figure 21: Interview Q1: Supply chains impacted.................................. 72
Figure 22: Objective use of risk matrices.............................................. 77
Figure 23: Specific, existing or no risk category..................................... 81
Figure 24: Questionnaire respondents' gender ...................................... 84
Figure 25: Questionnaire respondents' field of work............................... 85
Figure 26: Sector in which the respondents' organization operates .......... 86
Figure 27: Specific sector on which the respondents organization
focuses ............................................................................ 86
Figure 28: Size of the respondents' organization ................................... 87
Page viii
Figure 29: Respondents' years of experience in the sector of
employtment .................................................................... 88
Figure 30: Respondents' years of experience in their field of work ........... 88
Figure 31: Respondents' level of responsibility ...................................... 89
Figure 32: Respondents' region of employment ..................................... 90
Figure 33: Respondents' region of origin............................................... 91
Figure 34: Location of respondents' organization's head office................. 91
Figure 35: Likert scale on supply chains in general having been more
than marginally impacted by climate risk events over the
past 3 years ..................................................................... 94
Figure 36: Has your organization's supply chain been more than
marginally impacted by a climate risk event over the past 3
years?.............................................................................. 94
Figure 37: Climate risk events that more than marginally impacted
supply chains.................................................................... 95
Figure 38: Perceived impact of the climate risk event............................. 96
Figure 39: Impact of the climate risk event related to the company's
risk appetite ..................................................................... 97
Figure 40: Preferred climate risk impact indicators................................. 98
Figure 41: Perceived likelihood of future climate risk events impacting
respondents' supply chains over the coming three years ...... 100
Figure 42: Preferred climate risk prediction indicators .......................... 102
Figure 43: Perceived impact of the top 3 climate risk events ................. 103
Figure 44: Impact of climate risk events related to the company's risk
appetite ......................................................................... 104
Figure 45: Differences in flooding likelihood perception ........................ 105
Figure 46: Differences in hurricane / cyclone / typhoon likelihood
perception ...................................................................... 105
Figure 47: Types of risk treatment options used.................................. 106
Figure 48: Types of risk treatment options used when flood impacted .... 107
Figure 49: Types of risk treatment options used when hit by a
hurricane........................................................................ 107
Figure 50: Perceived level of influence on risk management decision-
making .......................................................................... 108
Figure 51: Western Digital factory inundated by flood waters ................ 159
Page ix
List of Tables
Table 1: Basic steps of the risk management process............................. 19
Table 2: Operational levels, risk sources events and consequences .......... 27
Table 3: SMART indicator properties .................................................... 39
Table 4: Knowledge levels and risk consequence certainty...................... 43
Table 5: Tomlin vs. Weinhofer and Bush on supply chain risk response
strategies ......................................................................... 44
Table 6: Main research paradigms ....................................................... 49
Table 7: Relationship between research objectives and questions ............ 71
Table 8: Indicators for climate risk consequences .................................. 77
Table 9: Climate risk indicators ........................................................... 80
Table 10: Application of a risk management system............................... 92
Table 11: Adherence to a risk management standard............................. 92
Table 12: Application of a supply chain risk management system............ 93
List of Appendices
ANNEX 1: Members of the research expert panel ................................. 157
ANNEX 2: The July-November 2011 Thailand floods and disruptions in the
global hard disk supply chain......................................................... 159
ANNEX 3: Interview introduction and consent ..................................... 161
ANNEX 4: Interview protocol............................................................. 162
ANNEX 5: Interview transcripts ......................................................... 164
ANNEX 6: Internet-mediated questionnaire introduction....................... 226
ANNEX 7: Interview-mediated questionnaire....................................... 228
Page x
List of Abbreviations
3BL Triple bottom line
4T Tolerate, treat, transfer and terminate
ACRM Adaptive collaborative risk management
ADB Asian Development Bank
ALARP As low as reasonably practicable
ANAO Australian National Audit Office
APEA Asia Pacific Evaluation Association
B2B Business to business
CDS Center for Decision Sciences
CEO Chief executive officer
CO
2
Carbon Dioxide
COSO Committee of Sponsoring Organizations of the Treadway
Commission
CSCMP Council of Supply Chain Management Professionals
CSIRO Commonwealth Scientific and Industrial Research
Organisation
CSR Corporate social responsibility
DSE Department of Sustainability and Environment
EC European Commission
EPPI Evidence for Policy and Practice Information and Co-
ordinating Centre
ERM Enterprise risk management
GAMAB Globalement au moins aussi bon
GHG Greenhouse gases
GIZ Deutsche Gesellschaft fr Technische Zusammenarbeit
HSE Health and Safety Executive
IDEAS International Development Evaluation Association
IEEE Institute of Electrical and Electronics Engineers
Page xi
IEEM Industrial Engineering and Engineering Management
IOCE Organization for Cooperation in Evaluation
IOR Institute of Operational Risks
IPCC Intergovernmental Panel on Climate Change
IRM Institute of Risk Management
ISIC International Standard Industrial Classification codes
ISO International Standards Organization
IUCN International Union for Conservation of Nature
JIT Just-in-time
KCI Key control indicator
KPI Key (risk) performance indicator
KRI Key risk indicator
LBA Logistics Bureau Asia
LLA Logistics Learning Alliance Ltd
MECE Mutually exclusive and collectively exhaustive
MEM Minimum endogenous mortality
MIT Massachusetts Institute of Technology
NASA National Aeronautics and Space Administration
ND-GAIN Notre Dame University Global Adaptation Index
NFPA National Fire Protection Association
ODI Overseas Development Institute
OECD Organisation for Economic Co-operation and Development
PWC Pricewaterhouse Coopers
QDA Qualitative data analysis
R&D Research and development
RO Research objective
SCC Supply Chain Council
SCOR Supply Chain Operations Reference model
SCRLC Supply Chain Risk Leadership Council
Page xii
SCRM Supply chain risk management
SCRMP Supply chain risk management process
SMART Specific, measurable, attainable and action-oriented,
relevant, and time-bound
SME Small and medium-sized enterprises
TQM Total quality management
UNCED United Nations Conference on Environment and
Development
UNDESA United Nations Department of Economic and Social Affairs
UNEP United Nations Environment Programme
UNFCCC United Nations Framework Convention on Climate Change
UNGA United Nations General Assembly
UNWCED United Nations World Commission on Environment and
Development
UPS United Parcel Service
USD United States Dollar
WEF World Economic Forum
WMO World Meteorological Organization
Page 1
INTRODUCTION
Part of what you need to do in the supply chain is to help your company
anticipate events, and understand the environment you operate in around
the globe.
Frances Townsend, speaker at CSCMP 2008.
2 3
I.1 Background to the Research
The research background provides a historical perspective and discusses
important concepts on which this research is built, needed for the reader as
foundation in order to grasp the research aims and objectives and to
understand choices made in subsequent chapters.
Climate Change
It was late 19
th
century when Swedish scientist Svante Arrhenius first
calculated the effect of atmospheric CO
2
on global warming and cooling.
Given the low rate of CO
2
production in 1896, Arrhenius estimated that
global warming due to human CO
2
emissions would take thousands of
years.
4
Through the work of the Intergovernmental Panel on Climate
Change (IPCC)
5
we now know better. The IPCC was established by the
United Nations Environment Programme (UNEP) and the World
Meteorological Organization (WMO) in 1988 to provide the world with a
clear scientific view on the current state of knowledge in climate change and
its potential environmental and socio-economic impacts.
6
The work of the
IPCC has driven the development of an extensive research base on the
concepts of climate change adaptation, adaptive capacity, resilience and
vulnerability to climate change in the context of human communities and
systems.
7
2
CSCMP is the Council of Supply Chain Management Professionals annual global conference.
3
Frances M. Fragos Townsend is the former Homeland Security Advisor to United States President
George W. Bush and member of the New York policy study group Council on Foreign Relations.
4
Weart 2008.
5
IPCC 1990a, 1990b, 1995a, 1995b, 2001a, 2001b, 2007a, 2007b, 2012, 2013 and 2014.
6
UNGA 1988.
7
Kelly and Adger 2000; OBrien et al. 2004; Smit and Wandel 2006; Hahn and Frode 2010;
Vijayavenkataraman, Iniyan and Goic 2012.
Page 2
It has provided the scientific foundation for negotiating the United Nations
Framework Convention on Climate Change (UNFCCC)
8
, which has the
ultimate objective to stabilize greenhouse gas concentrations at a level
that would prevent dangerous anthropogenic (human induced) interference
with the climate system.
9
The work of the IPCC has also inspired research that focuses on climate
change, adaptation, resilience and vulnerability towards and within specific
economic / industrial sectors, technologies or cross-sectoral areas of human
systems, for example energy
10
, transport and infrastructure
11
, urban
environments
12
or banking and the insurance industry
13
.
Climate Change, Sustainability and the Corporate Agenda
Climate change is in essence a sustainable development issue, given that
unsustainable resource use beyond the carrying capacity of supporting
ecosystems has contributed to the current state of affairs
14
, which
constraints development and demands future growth and development to
be more sustainable.
It was 1970 when Milton Friedman published his (in)famous article titled
The social responsibility of business is to increase its profits
15
in New York
Times Magazine. It was written at a time of strong critique on socialist
economic models and based on the idea that social/environmental
responsibility comes at the expense of economic returns. The sustainability
doctrine changed with the 1973 and 1979 energy crises and the United
Nations World Commission on Environment and Development (UNWCED)
report Our common future
16
, introducing the concept of sustainable
development.
8
The UNFCCC is an international environmental treaty negotiated at the United Nations Conference on
Environment and Development (UNCED), informally known as the Earth Summit, held in Rio de
Janeiro from 3 to 14 June 1992.
9
UN 1992, Article 2, p. 4.
10
Connor, Michaeklow and Willianson 2009.
11
Dasgupta et al 2009; Love, Soares and Pempel 2010.
12
Hunt and Watkiss 2011.
13
Lubber 2012; Seifert and Lindberg 2012.
14
See footnote 5.
15
Friedman 1970.
16
UNWCED 1987.
Page 3
Nevertheless, sustainability and social responsibility were still seen as part
of corporate philanthropy / corporate social responsibility (CSR) with little to
no relevance to core corporate strategies. Only over the past decade, aided
by reports like the Stern review report on the economics of climate
change
17
, companies have started to recognize that their growth is limited
by and depends on actions in relation to the challenges posed by carbon
constraints, limits to environmental degradation and other issues on the
climate change and sustainability agenda.
This agenda of sustainability and corporate responsibility is not only central
to business strategy but will increasingly become a critical driver of business
growth ... I believe that how well and how quickly businesses respond to
this agenda will determine which companies succeed and which will fail.
Patrick Cescau, CEO of Unilever in PWC 2011, p. 1.
Over 50% of businesses now have a sustainability strategy in place and
57% of top executives believe that the overall benefits of efforts to achieve
sustainability outweigh the costs.
18
Carter and Rogers state that
organizational sustainability consists of three components: the natural
environment, society, and economic performance corresponding with the
triple bottom line (3BL) concept of Elkington
19
, visualized on the following
page in Figure 1.
These three components suggest that sustainable organizational activities
do not only have a positive effect on the environment and society, but can
also result in economic benefits and competitive advantages for
organizations. A diverse body of academic publications
20
shows that from
mid-2000 onwards sustainability has steadily moved to the heart of the
corporate strategy. While corporate sustainability at times focuses more on
business continuity planning or future proofing than on the 3BL concept,
corporations do start to realize that it is critical to maintaining an
organizations social license to operate.
21
Sustainability thinking, both from
17
Stern 2006.
18
Lowitt 2009; Halldrsson and Kovcs 2010; KPMG International 2011; PWC 2011.
19
Elkington 1997 and 2004; Carter and Rogers 2008.
20
Markley and Davis 2007; Smith 2007; Moore and Wen 2008; Feldman 2009; McDermott 2009;
Ramirez and Hachiya 2009; Vaccaro 2009; Nejati, Shahbudin and Amran 2010; Ciu and Jiao 2011;
Henderson 2011; Bouglet, Joffre and Simon 2012; Murthy 2012;
21
Pojasek and Hollist 2011, p. 83.
Page 4
a 3BL as well as the business continuity sustainability perspective, gained
momentum with the coming into force of the Kyoto Protocol in 2005, an
international agreement to limit green house gas (GHG) emissions adopted
in 1997.
22
Figure 1: The triple bottom line concept
23
Thenceforth there has been a growing focus of the corporate sustainability
agenda towards the sustainability of business processes and industrial
operations in relation to GHG emissions and the reduction of their carbon
footprint. Technological innovations, emission trading schemes and other
Kyoto mechanisms help companies to achieve their emission limits and
shrink their carbon footprint, but industrys responses depend heavily on
pressures coming from all three 3BL elements, e.g. regulatory pressures,
societal and shareholder demands, market positioning, economic conditions
and access to alternative technologies.
24
In a 2012 research by MIT Sloan Management Review in collaboration with
the Boston Consulting Group
25
67% of respondents agrees that
sustainability-related strategies are needed to be competitive and 31% sees
sustainability activities and decisions directly adding to the overall profits.
22
UNFCCC 1998.
23
Carter and Rogers 2008, p. 365, fig. 1.
24
van der Woerd et al. 2004; Jeswani, Wehrmeyer and Mulugetta 2008; Weinhofer and Hoffman 2010;
Lee 2011.
25
Haanaes et al. 2012.
Environmental
performance
Social
performance
Sustainability
Economic
performance
Page 5
Climate Change, Sustainability and Supply Chain Management
Organizations more and more look at the inter-relationship between their
supply chain and climate change or environmental factors
26
, given that 50
to 70% of a products value is derived from its supply chain.
27
Initial reasons for taking into account environmental factors in supply chain
processes and management were societal pressures and to ensure market
access in the face of environmental regulations, e.g. emission limits and
other environmental policies.
28
Lately, more economic factors have come
into play given stringent climate change regulations, increasing raw material
and fuel needs by developing economies and growing water scarcity, having
possibly significant impacts on future operating costs.
29
Climate Proofing Supply Chains
Climate change can have regulatory, direct economic as well as physical
effects on supply chains, all resulting in potential costs, and there is
increased awareness of supply chains climate vulnerability in that respect.
Kolk and Pinkse
30
look at organizational climate change supply chain
strategies in relation to GHG emissions and related risks, while Lash and
Wellington
31
look at carbon-related risks and opportunities. Halldrsson and
Kovcs
32
discuss the development of an energy agenda, opposed to a
sustainability agenda, with the need to rethink supply chain management
on both the operational as well as the conceptual level. These researchers
focus on greening the supply chain, which concentrates on sustainability
aspects and does not necessarily take into account vulnerability and
resilience towards physical climate change and environmental factors.
This research focuses on the physical element of climate change and
extreme weather events - not the legislative element or direct economic
effects but the economic impact of such occurrences should be seen as a
driver and factor in support of climate risk research.
26
Halldrsson and Kovcs, 2010; Jira and Toffel 2012.
27
Mahler 2007; Lowitt 2009.
28
Sadgrove 1996; Lippmann 1999; Hall 2000.
29
Jones and Levy 2007; Lash and Wellington 2007; McKinsey 2007; Jun et al. 2010; Bapna 2012; Jira
and Toffel 2012.
30
Kolk and Pinske 2004.
31
Lash and Wellington 2007.
32
Halldrsson and Kovcs 2010.
Page 6
Though cross-border collaboration within supply chains is not new
33
it has
intensified through outsourcing and off-shoring over the past decades
resulting in longer, more complex supply chains.
34
Process improvement
strategies like just-in-time (JIT) management, total quality management
(TQM), six sigma and lean were introduced and aimed at reducing waste,
while improving responsiveness.
Many manufacturing executives now recognize that quality problems,
longer supply chains, lack of visibility are also part of the offshoring
operation.
35
And what makes complex supply chains leaner and more
responsive in a stable environment also increases their vulnerability to low-
probability/high-impact risk events.
36
Large-scale disruptions illustrate
companies dependencies on a web of infrastructure connections. Phone
lines, power lines, water lines, gas lines, rail lines, highways and ports
connect companies to critical services, suppliers and customers,
37
n.b.
links, nodes as well as assets in these will be impacted by such risk events.
I.2 Overview of the Research Problem
What makes complex supply chains leaner and more responsive in a stable
environment also increases their vulnerability to low-probability/high-impact
risk events.
38
Despite an increased awareness of the impact climate change
and environmental factors can have on business activities and a growing
interest in the role supply chain management can play there has been
limited research that addresses supply chain resilience towards physical
climate change and weather-related risk sources (hereafter called climate
risk sources) and events (hereafter called climate risk events), from a
supply chain risk management and risk assessment perspective.
39
33
Leonard Reid wrote a famous 1958 essay in which a pencil describes all its antecedents in detail;
Actually, millions of human beings have had a hand in my creation, no one of whom even knows
more than a very few of the others.. Reid 1958.
34
As one example of this growing level of interconnectivity and complexity: Rivoli 2006.
35
Ferreira and Prokopets 2009.
36
Cranfield University 2003a; Gatignon and Kimberley 2004; Kleindorfer and van Wassenhove 2004;
Sheffi 2005a and 2005b; Zsidisin, Ragatx and Melnyk 2005; Wagner and Bode 2006; Craighead et al.
2007; Bleda and Shackley 2008; Wagner and Bode 2008; Linnenluecke and Griffiths 2010; Winn et
al. 2011; Jira and Toffel 2012; Meena, Sarmah and Sarkar 2011; Linnenluecke, Griffiths and Winn
2012; Machowiak 2012; Weinhofer and Busch 2012.
37
Sheffi 2005b, p. 18.
38
See footnote 36.
39
Cranfield University 2003a; Christopher and Peck 2004; Rao and Goldsby 2009; Halldrson and
Kovcs 2010; Turner 2011; Winn et al. 2011; Linnenluecke, Griffiths and Winn 2012.
Page 7
The high levels of uncertainty of consequences or impact and occurrence of
climate change and extreme weather events make it hard for managers to
guide their organization to take appropriate action.
40
The problem statement translates into the following management
questions:
1. To what extent have climate change and extreme weather events
impacted companies supply chains?
2. Are physical climate change and weather-related risk indicators
(hereafter called climate risk indicators) taken into account into
companies Supply Chain Risk Management Processes (SCRMP)?
3. Do these climate risk indicators aid management decision-making to
improve supply chain resilience?
I.3 Research Questions
The research questions below and objectives in the subsequent paragraph
flow naturally from the problem statement and related management
questions, taking into consideration existing good practice and guidelines
41
on formulating research questions and objectives.
1. To what extent have physical climate change and extreme weather
events impacted supply chains?
2. To what extent are climate risk indicators taken into account in
companies Supply Chain Risk Management Processes (SCRMP)?
2 a. What are the climate risk indicators used in companies SCRMP?
2 b. What are the risk categories in which these indicators are used
in companies SCRMP?
2 c. What is the risk ranking given to these risk indicators used?
3. How do climate risk indicators, risk categories and risk ranking inform
management decision-making to improve supply chain resilience?
40
Peterson 2006; Winn et al. 2010; Linnenluecke, Griffiths and Winn 2012.
41
Creswell 2012; Rojon and Saunders 2012; Saunders, Lewis and Thornhill 2012; Miles, Huberman and
Saldaa 2013.
Page 8
I.4 Objectives of the Study
The main objective of this research is to study climate risk indicators as part
of the Supply Chain Risk Management Process (SCRMP), with a focus on the
risk assessment phase, to facilitate the development of risk response and
control plans to improve supply chain resilience towards climate risk events,
to be called climate proofing.
42
The research objectives below give a more operational view of the research
questions, identifying elements to be answered to arrive at satisfactory
conclusions about the research questions.
RO1. To identify whether supply chains have been more than marginally
impacted by physical climate change and extreme weather events
(climate risk events) over the past three years
RO2. To identify the perceived extent of negative consequences of climate
risk events on the supply chains impacted
RO3. To identify the climate risks, risk indicators and related risk
categories used in companies Supply Chain Risk Management
Processes (SCRMP)
RO4. To analyze climate risks by identifying their consequence severity,
risk likelihood, levels of risk exposure and thus risk ranking
RO5. To make recommendations on implementing this information into the
SCRMP, and
RO6. To describe how this can inform management decision-making to
improve supply chain resilience.
I.5 Research Rationale
This research aims to add to the body of knowledge on supply chain risk
assessment from a climate risk perspective and hopes to complement the
existing research on supply chain risk management (SCRM) indicators and
risk assessment. Researchers may find the findings useful in the
development of future SCRM frameworks. Information on indicators and risk
categories in which these indicators are used could support a more
streamlined integration of climate risk indicators in SCRMPs.
42
The term climate proofing seems to imply that businesses and processes can truly and completely
be made climate proof. This is not practically possible and as such the term is technically a
misnomer. It would be more accurate to talk about enhancing / improving the climate resilience,
but in laymans terms this is often replaced with the notion of climate proofing.
Page 9
Senior management in companies whose supply chains will likely be
impacted by future climate risk events can use the research outcomes to
inform their SCRM and related decision making towards supply chain
resilience.
This research stems from the authors professional experience in the climate
change and supply chain disciplines, and his professional interest in the
possible consequences created by the potential rise in extreme weather
events both in number and force - on supply chain operations.
I.6 Limitations
The limited timeframe in which the research took place affected research
design choices.
43
Due to the largely qualitative nature of expert panel
interview data
44
and the snowballed self-selection approach chosen for
applying the internet-mediated questionnaire
45
only moderatum
generalizations
46
based on contextual transferability
47
of results towards
real world contexts are possible, further explained in Paragraph 2.7.
To increase accuracy and to triangulate results an iterative mixed-method
research design, further explained in Chapter 2, was chosen to collect
qualitative and quantitative data concurrently in order to counter-balance
weaknesses of one kind of data by strengths of the other kind.
48
Choices made towards this research studys boundaries are as follows:
- The exact reasons behind current climatic changes developing, possibly
being a mix of anthropogenic (man-made) and biotic or natural impacts,
will not be explored as part of this research study
- This research focuses on the physical element of climate change and
(extreme) weather events, not on the legislative elements, social
elements or direct economic effects
- Earthquakes and volcanoes, being natural catastrophes, are not taken
into account in this research study given the research base on the
linkages between climate change and the occurrence of earthquakes
and volcanoes is still in its infancy
43
See Chapter 2 Research Methodology.
44
See Paragraph 2.3 Expert Panel Interviews.
45
See Paragraph 2.4 Internet-Mediated Questionnaire.
46
Schutz 1982; Williams 2002.
47
Halldrsson and Aastrup 2003, p. 327; Saunders, Lewis and Thornhill 2012, p. 194.
48
Nslund 2002; Mangan, Lalwani and Gardner 2004; Kovcs and Spens 2005; Harrison and Reiley
2011; Sanders and Wagner 2011; Golicic and Davis 2012.
Page 10
- The focus of this research study is on the negative impacts of climate
risk events not on potential positive consequences
- The negative consequences of climate risk sources and events on supply
chains lay at the heart of this research, not their impact on the broader
concept of value chain, which would include product design, marketing,
after-sales, re-use, etc.
- The aim of this research study is not to develop climate risk indicators,
but to identify climate risk indicators and related risk categories being
used in companies Supply Chain Risk Management Process (SCRMP).
- This research departs from and builds upon risk management standard
31000 of the International Organization for Standardization (ISO),
49
being the most widely used and accepted risk management standard
- Given the researchs focus on climate risk sources and taking into
account the limited research timeframe, the focus will be on the risk
assessment phase.
Do note that the Harvard referencing system has been used to reference all
literature throughout this research report, but to improve overall readability
the referencing has been done in the footnotes and not the main text.
I.7 Outline of the Report
This research report is divided into an introduction, glossary and five
chapters. The Introduction provides the background and foundation for the
reader, and sets the research objectives. Technical terms used are defined
in the Glossary, which is placed after the Introduction because terms
defined are being used throughout the report and form the definitional
groundwork of subsequent chapters.
The first chapter provides an in-depth review of relevant supply chain risk
management literature. Chapter 2 explains the choices made towards the
research design and the methodology adopted. Data analysis and results
can be found in Chapter 3, while a reflection on these results is presented in
Chapter 4. Conclusions and recommendations are provided in the final
chapter, Chapter 5, looking back at the problem statement and objectives
formulated in this introduction.
49
ISO 2009a and 2009b.
Page 11
GLOSSARY
With the research aim focusing on climate risk sources in supply chain risk
management, this research brings together two fields of knowledge with
each their specific technical terms and definitions. Given the importance and
relevance of the explanations of concepts as forming the definitional
groundwork for this research study and their use throughout the following
chapters of this research report, the choice was made to introduce these
concepts here.
Climate change related technical terms and definitions are presented in the
first paragraph, with Paragraph G.2 focusing on terms and definitions
specific to risk management.
G.1 Climate Change Technical Terms and Definitions
The definitions have been adapted from the sources representing the most
widely used definitions, being the IPCC Fourth Assessment Report
50
and the
Dictionary of Geological Terms
51
, unless stated otherwise in a footnote.
Adaptation Adjustment in natural or human systems in response to
actual or expected climatic stimuli or their effects, which moderates harm,
increases resilience or exploits beneficial opportunities.
Adaptive capacity The ability of a system to adjust to climate change
(including climate variability and extremes) to moderate potential damages,
to take advantage of opportunities, or to cope with the consequences.
Climate change Climate change refers to a change in the state of the -
climate that can be identified by changes in the mean and/or the variability
of its properties, and that persists for an extended period, typically decades
or longer. Climate change may be due to natural internal processes or
external forcings, or to persistent human-induced changes in the
composition of the atmosphere or in land use.
50
IPCC 2007a and 2007b.
51
Bates and Jackson eds. 1984.
Page 12
Climate proofing In this research study climate proofing is defined as
improving or enhancing supply chain resilience towards climate risk events,
which are those risk events originating from physical climate change and
weather-related risk sources, to be called climate risk sources.
52
Environment Environment is used and defined in this research as the
natural environment, encompassing all living and non-living things occurring
naturally on Earth or some region thereof, and their interaction.
53
The
concept of environment will be used interchangeably with the concept of
ecosystem.
Impacts The effects of climate change on natural and human systems.
Depending on the consideration of adaptation, one can distinguish between
potential impacts and residual impacts; Potential impacts, being all impacts
that may occur given a projected change in climate, without considering
adaptation. Residual impacts, being the impacts of climate change that
would occur after adaptation.
Mitigation A human intervention through technological change and
substitution that reduces resource inputs and emissions per unit of output.
Although several social, economic and technological policies would produce
an emission reduction, with respect to climate change, mitigation means
implementing policies to reduce GHG emissions and enhance GHG sinks.
Potential In the context of climate change, potential is the amount of
mitigation or adaptation that could be - but is not yet - realized over time.
Resilience The ability of a system to absorb disturbances while retaining
the same basic structure and ways of functioning, the capacity for self-
organization, and the capacity to adapt to stress and change.
Sensitivity Sensitivity is the degree to which a system is affected, either
adversely or beneficially, by climate variability or change. The effect may be
direct (e.g., a change in crop yield in response to a change in the mean,
range or variability of temperature) or indirect (e.g., damages caused by an
increase in the frequency of coastal flooding due to sea-level rise).
52
Defined by the author.
53
Johnson et al. 1997.
Page 13
Sustainability Sustainability is improving the quality of human life while
living within the carrying capacity of supporting ecosystems.
54
Sustainable development Development that meets the cultural, social,
political and economic needs of the present generation without
compromising the ability of future generations to meet their own needs.
Vulnerability Vulnerability is the degree to which a system is susceptible
to, and unable to cope with, adverse consequences of climate change,
including climate variability and extremes. Vulnerability is a function of the
character, magnitude, and rate of climate change and variation to which a
system is exposed, its sensitivity, and its adaptive capacity.
G.2 Risk Management Technical Terms and Definitions
Risk management technical terms and definitions follow the ISO 31000 Risk
Management Principles and Guidelines and ISO Guide 73 Risk Management
Vocabulary
55
, unless stated differently in the footnote.
The literature review in the subsequent chapter further elaborates on risk
management, supply chain risk management, and the risk assessment
process adopted for use in this research study.
Exposure Exposure is the extent to which an organization is subject to a
risk event.
Risk Risk is the effect of uncertainty on (business) objectives. The effect
may be positive, negative or a deviation from the expected and risk is often
described by an event, a change in circumstances or a consequence. Given
the managerial scope of this research the focus will be on negative effects
of uncertainty on objectives, most accurately reflecting business reality.
Risk acceptance levels Risk acceptance levels are the level of risk to
which one makes an informed decision to take a particular risk. Risk
acceptance can occur without risk treatment. The ISO31000 standard states
that generally established risk acceptance principles should be used. The
ALARP (as low as reasonably practicable) principle will be used to link risk
54
Barrow 1994.
55
See footnote 49.
Page 14
acceptance levels to decision making, in a three level context where low
risks are called accepted and high risks are intolerable and have to be
reduced, with in between these zones a region of tolerability.
56
The resulting
acceptance levels are acceptable, tolerable and unacceptable.
Risk analysis Risk analysis is the process to comprehend the nature of
risk and to determine the level of risk. The main elements of risk analysis
are risk levels, risk likelihood and risk consequence.
Risk assessment Risk assessment is the overall process of risk
identification, risk analysis and risk evaluation.
Risk categories Risk categories are sometimes referred to as risk
dimensions
57
or risk elements
58
. Irrespective of the term used they
indicate the grouping of risks by characteristic supply chain or
organizational elements, for example; demand risks, process risks,
transportation risks, etc. There are various ways of categorizing risks.
59
The
aim will be to identity in which categories climate risk indicators are used,
without judging the categorization itself. Research Objective 3 (RO3)
focuses in part on determining the risk categories in which climate risk
indicators are used in companies SCRMP.
Risk consequence Risk consequence is the result of a risk source giving
rise to risk, or the outcome of an event affecting objectives. A consequence
can be certain or uncertain and can have positive or negative effects on
objectives with possible knock-on effects, either expressed qualitatively or
quantitatively. Risk consequence is often measured on a scale from
negligible or insignificant to catastrophic or critical.
60
Risk consequence
is part of Research Objective 4 (RO4).
Risk evaluation Risk evaluation is the process of comparing the results
of risk analysis with risk criteria to determine whether the risk and/or its
magnitude are acceptable or tolerable. It involves the sub-steps of risk
ranking and risk acceptance.
56
Ersdal and Aven 2008, p. 200; Aven 2009; Tummala and Schoenherr 2011, p. 479.
57
Spekman and Davies 2004.
58
Tang and Numaya 2011.
59
Finch 2004; Spekman and Davies 2004; Zsidisin 2004; Kleindorfer and Saad 2005; Peck 2005; Sheffi
and Rice 2005; Oke and Gopalakrishnan 2009; Tummala and Schoenherr 2011; Sodhi, Son and Tang
2012.
60
ISO 2009a and 2009b; Tummala and Schoenherr 2011.
Page 15
Risk event Risk event is an occurrence or change of a particular set of
circumstances having the potential to give rise to risk, for example the
transformation of a hazard into a risk source giving ultimately rise to risk.
Climate risk events are those risk events originating from physical climate
change and weather-related risk sources, to be called climate risk sources.
Risk identification Risk identification is the process of finding,
recognizing and describing risks. It involves the identification of climate risk
sources and events. Research Objective 1 (RO1) focuses on finding,
recognizing and describing risks, while Research Objective 3 (RO3) targets
the identification of climate risk indicators used in companies SCRMP.
Risk indicators Risk indicators are metrics used to monitor identified risk
exposures over time, therefore any piece of data that can perform this
function may be considered a risk indicator.
61
Indicators may represent key
ratios tracked as indicators of evolving risks, or they may be more elaborate
and involve the aggregation of several individual risk indicators into a multi-
dimensional score about emerging events that may lead to new risks.
62
Climate risk indicators are those risk indicators that link directly to physical
climate change and weather-related risk exposures.
Risk levels - The level of risk is the magnitude of a risk or a combination of
risks, expressed in terms of the product of the likelihood of occurrence of a
certain future risk event and the likely consequences or impact of the event,
or risk consequence, on the supply chain, informed by the companys risk
acceptance level. The risk levels are often visually presented in a risk
matrix, ranking and displaying risks by defining ranges for consequence and
likelihood. Risk levels are part of Research Objective 4 (RO4).
Risk likelihood - Risk likelihood is the chance of something happening /
occurring, often measured on a scale from extremely rare to often
63
or
from no chance to certain to happen.
64
The term likelihood has been used,
opposed to probability, to not give the notion of a narrower mathematical
interpretation of likelihood.
65
The IPCC reports
66
range of the likelihood of
61
IOR 2010.
62
Beasley, Branson and Hancock 2010.
63
Tummala and Schoenherr 2011.
64
Weinstein and Diefenbach 1997.
65
Klemens 2009.
66
See footnote 50.
Page 16
occurrence of an uncertain risk event is used throughout this report, being:
>99% Virtually certain; >90% Very likely; >66% Likely; 33 to 66% About
as likely as not; <33% Unlikely; <10% Very unlikely; <1% Exceptionally
unlikely. Risk likelihood is part of Research Objective 4 (RO4).
Risk ranking - Risk ranking is based on the determination of risk levels for
each identified supply chain risk. Risk ranking is part of Research Objective
4 (RO4).
Risk source A risk source is an element which alone or in combination
has the intrinsic potential to give rise to risk. Climate risk sources are
those that are directly linked to physical climate change and weather-
related sources of risk.
Page 17
CHAPTER 1 LITERATURE REVIEW
A stepped literature review approach, further described in Paragraph 2.2,
was used to critically review the existing body of knowledge relevant to this
research and needed to frame and ground the research within the existing
supply chain climate risk management enigma. The review started with an
initial literature orientation and exploratory review focusing on the climate
change and environmental context in relation to corporate processes and
supply chains, shaping the background to the research and aiding in the
formulation of the research problem.
1.1 Introduction
This chapter focuses on providing the needed theoretical foundation for this
research study using a focused and refined literature review process to
demonstrate the significance of the existing body of research, to inform and
advance research design stages and to show how this research adds and
contributes to the specific area of investigation and wider context.
The following paragraphs start with a short historical view on risk
management and how it has developed over time. It looks at the growing
importance of SCRM, how climate risks fit into this picture, the processes
used in SCRM analysis and finally, how this all should inform management
decision-making, ending with a critical note on risk perception.
1.2 Risk Management
It was Chevalier de Mr in 1717, professional knight and gambler, who
instigated the development of the first scientific approach to risk
management. He asked famous mathematician Blaise Pascal to calculate his
unexpected losses in a game of rolling the dice. Pascal collaborated with
amateur mathematician Pierre de Fermat and the two laid out the
foundation for the theory of probability, hence the first steps were set in
risk management.
67
67
Falk 1997.
Page 18
A seminal piece of work in the management discipline dealing directly with
risk management was by Markowitz
68
who described risks and rewards of
financial investments. Early risk management and analysis research can be
divided into two distinct groupings. The first category focuses mainly on
statistical inference and categorization of technological risks and the risks of
human activities with a focus on risk perception and/or business processes,
and the use of mathematical and statistical procedures to analyze and
evaluate risks.
69
The second body of research - with researchers like Robert
W. Kates and Gilbert F. White - focuses on natural hazards from an
environmental and natural resource management perspective, often using
processes and procedures originating from social research and social
evaluation practices.
70
Bowonder makes a link between the two groups by focusing on
environmental risks and early warning systems in developing countries,
while Sherif looks at environmental considerations to strengthen
technological risk management.
71
But a first attempt to link natural hazards,
risk management and (business) decision-making is perhaps by Robert W.
Kates research (1978) on risk assessment of environmental hazards.
Though he defines environmental hazard as the threat potential posed to
man or nature by events originating in or transmitted by the natural or built
environment (p. 12), which is a wider definition of the environment than
the one used for this research. His research case studies mainly explore
environmental hazards originating in the built environment, like
stratospheric pollution and ozone, mercury pollution in agriculture and risks
related to nuclear reactors. Though his conclusion can be seen as a
precursor of the present-day climate change discussion:
We need, in short, some global abominations some avoidances, some
risks to be averted not because it is impossible to cope successfully with
any of these potential [environmental] hazards, but because it may be
impossible to cope successfully with all of them
Robert W. Kates 1978 p. 100.
68
Markowitz 1952.
69
Markowitz 1952; Starr 1969; Otway and Pahner 1976; Rowe 1980; Fischhoff et al. 1981; Covello
1983; Covello and Mumpower 1985; Slovic 1987; Greenwald and Stiglitz 1990; Sherif 1991.
70
Burton and Kates 1964; White 1974; White and Haas 1975; Burton, Kates and White 1978; Kates
1978; Bowonder 1981; Baird 1986; Sherif 1990.
71
Bowonder 1981; Sherif 1990.
Page 19
Risk management research in general
72
shows a reluctance to come to one
all-encompassing definition of risks, possibly related to the diverse nature of
both risks and their consequences. Risk and all its elements have been
defined in the Glossary and - as earlier indicated - the focus will be on the
negative effects of uncertainty on business objectives, most accurately
reflecting todays business reality in the light of climate risks.
There are various ways to describe risk management and related
processes
73
, but it essentially boils down to four fundamental steps (Table
1).
1. Identify potential risk sources in their context
2. Asses risk levels of all potential threats identified
3. Evaluate findings against risk acceptance levels and wider context
4. Select and implement risk treatment options.
Table 1: Basic steps of the risk management process
74
The risk management process most widely used and accepted is that of the
International Organization for Standardization (ISO) risk management
standard 31000,
75
its basic representation visualized in Figure 2 on the
following page. This research will depart from and build upon this standard,
given it is the most widely used and accepted standard, informed by other
relevant academic research with a focus on the risk assessment phase.
The processes of risk assessment (risk identification, quantification, analysis
and evaluation) and management (the overall process, resulting risk
treatment, communication, monitoring and reviewing) have developed
considerably over time. We now know that differences in risk acceptance
have more to do with differences in risk perception related to gender,
72
Markowitz 1952; Starr 1969; Rowe 1980; Fischhoff et al. 1981; Covello and Mumpower 1985; Baird
1986; Slovic 1987; Greenwald and Stiglitz 1990; Sherif 1990 and 1991; Fischhoff 1995; Kleindorfer
and Kunreuther 1999a and 1999b; Mitchell 1999; HSE 2001; Slovic and Weber 2002; Slovic and
Peters 2006; Wagner and Bode 2006 and 2008; Aven 2009; ISO 2009a; Rao and Goldsby 2009;
Beasley, Branson and Hancock 2010; IOR 2010; IRM 2010; Tang and Musa 2011.
73
McCormack et al. 2008; ISO 2009a and 2009b; Pujawan and Geraldin 2009; Kouvelis et al. 2012.
74
As identified by the author, based on the resources in footnote 72.
75
ISO 2009a and 2009b; IRM 2010; May and Plummer 2011; SCRLC 2011; Tummala and Schoenherr
2011; Jereb, Cvahte and Rosi 2012; Dallas 2013.
Page 20
culture, individual vs. group decision-making behaviour, level of knowledge
and media coverage of risks - rather than differences in attitude towards
(perceived) risks.
76
Figure 2: The ISO 31000 risk management process
77
1.3 Supply Chain Risk Management
With the term supply chain management only being coined on June 4 1982
by Keith Oliver in a Financial Times interview with Arnold Kransdorff
78
it
would take more than a decade before supply chain management and risk
management would be discussed in an integrated manner. Ritchie and
Marshall, and Sadgrove - in separate publications - are among the first to
mention supply chain disruptions as a risk factor for business performance,
while it are Richie and Brindley first developing a simple supply chain risk
model to map risk factors impacting global supply chains.
79
76
Covello 1983; Fischhoff et al. 1985; Slovic 1987; Fischhoff 1995; Slovic and Weber 2002; Slovic and
Peters 2006; Ersdal and Aven 2008.
77
ISO 2009b, p. 7, clause 5.
78
Oliver and Webber 1982.
79
Richie and Marshall 1993; Sadgrove 1996, pp. 51-56; Richie and Brindley 2000.
Establishing the context
Risk assessment
Risk identification
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Supply Chain Risk Management (SCRM) has received increasing attention
over the past decade, given that cross-border collaboration within supply
chains through outsourcing and off-shoring has intensified over the past
decades resulting in longer, more complex supply chains. The growing
complexity of modern supply chains is attributable to a drive for cost
reduction to make supply chains as efficient as possible in moving a product
or service through a process of activities towards customers to satisfy their
demands; resulting in high levels of customer satisfaction at low cost. The
unpredictability of the business environment and economic downturn,
continuous improvement initiatives / process improvement strategies like
just-in-time (JIT) management, total quality management (TQM), six sigma
and lean manufacturing, strategies to reduce supplier base and an increase
in extreme weather events have made supply chains more vulnerable to
climate risk events.
80
What makes supply chains leaner and more
responsive in a stable environment also increases their vulnerability to low-
probability/high-impact risk events.
Supply chains are not only vulnerable to disruptions in their network,
infrastructure and assets within nodes and links, but due to high levels of
inter-connectedness and inter-dependencies they are increasingly
vulnerable to disruptions on the side of their suppliers, customers, transport
providers, communication lines and other elements in the wider supply
chain environment.
81
An overview of some of the elements mentioned as
ameliorating supply chain vulnerability towards climate risk events is given
in Figure 3 on the next page.
The focus of this research will be on introducing climate risk sources, events
and indicators into Supply Chain Risk Management (SCRM) with a main
focus on the risk assessment phase. Climate risks need to be understood to
initiate their efficient management through the development of risk
response and control plans in order to improve supply chain resilience
towards climate risk events - including extreme weather - to be called
climate proofing.
80
See footnote 36.
81
Cranfield University 2003a and 2003b; Sheffi 2005a and 2005b; Sheffi and Rice 2005; Enyinda,
Ogbuehi and Briggs 2008; Meena, Sarmah and Sarkar 2011; WEF 2012; Wright and Datskovska
2012.
Page 22
Figure 3: Supply chain trends and climate risk
According to ISO 31000 Risk Management Principles and Guidelines
82
, risk
management is the coordinated activities to direct and control an
organization with regard to risk and it also refers to the architecture that is
used to manage risk, including risk management principles, a risk
management framework, and the risk management process.
Inspired by the triple bottom line (3BL) concept Carter and Rogers
83
define
SCRM as the ability of a firm to understand and manage its economic,
environmental, and social risks in the supply chain.
84
The focus of this
research will be on climate risk sources, being an element of environmental
performance potentially influencing economic and social performance.
Though climate proofing is expected to have an impact on all 3BL elements,
these are not explicitly taken into account in the risk assessment process.
82
ISO 2009b, p. 2.
83
See footnote 19.
84
Carter and Rogers 2008, p. 366.
Outsourcing
and off-shoring
Longer supply
lines, increase in
nodes
Complex
communication
networks
Increase in
product
complexity
Increase in
extreme
weather events
Continuous
improvement
initiatives
Less inventories,
buffer stock
reduction
Increase in
single sourcing
Increased supply
chain vulnerability
towards climate risk
sources and events Extensive
sub-contracting
Geographical areas
of production
specialization
Page 23
Hazards, risks and potential consequence
Before continuing to discuss the supply chain risk management process, it is
good to take a step back and get a clear view of technical terms as defined
in the Glossary and their possible interaction. One term used next to risk is
the term hazard. Hazards are potential sources of harm or danger.
85
Hazards can develop into risk sources, which can be used as risk indicators
or as part of a multidimensional risk indicator score. While not every hazard
will result in a risk source developing into a risk event and giving rise to
supply chain risk, every risk event originates from a hazardous condition.
Vulnerability is the degree to which a system is unable to cope with
certain risks, and a function of the character, magnitude, and rate of a risk
event to which a system is exposed, its sensitivity, and its adaptive
capacity.
Sensitivity and adaptive capacity are both elements of the system being
exposed, the first being the degree to which a system is affected and the
latter the ability of a system to adjust to a risk event, moderate potential
damages or cope with the consequences.
86
The potential risk consequence or impact is a function of both the
vulnerability and the level of risk exposure. The essence of most
disruptions is a reduction in capacity and therefore an inability to meet
demand
87
, which often translates into time delays and economic losses.
Where sensitivity focuses on the degree of the system being affected, risk
exposure focuses on the degree to which a system is being exposed to a
risk, irrespective of its sensitivity.
But what is seen as an acceptable risk to one company might not be
acceptable to another. The risk acceptance level is the level of risk to
which one makes an informed decision to take a particular risk, and/or the
moment where decisions towards active crisis management or contingency
planning are made.
85
ISO 2009a, p. 6; Kouvelis et al. 2012.
86
See footnote 50.
87
Sheffi 2005b, p. 14.
Hazard Risk source Risk Event Risk
Page 24
Figure 4 provides a visual representation of the relationships discussed.
88
The risk level in the end is the magnitude of a risk expressed in terms of
the product of the likelihood of occurrence of a certain (future) risk event
and the likely consequences or impact the event is expected to bring about,
informed by the companys risk acceptance level. This is often represented
in a heat map
89
, risk map
90
or risk matrix
91
as shown in Figure 5 on the
next page, in which risk levels are - in this case grouped into low,
medium, high or extreme.
Figure 4: Hazards, risks and consequences
The risk matrix in Figure 6 on the following page shows an alternative
representation, with 4 consequence/likelihood groupings. It also includes an
example of the type of action required in relation to risk event positions.
The visualization is an example of a risk matrix for a specific risk event in
one specific company. The type of action required differs for each company,
sector, type of risk event, risk acceptance level, etc. and could even be
developed for one specific node within a supply chain.
88
See footnote 61.
89
SCRLC 2011.
90
Norrman and Jansson 2004; Crawford and Seidel 2013, p. 15 and 32.
91
Norrman and Jansson 2004; McCormack et al. 2008; ISO 2009a; Agrawala et al. 2010; IRM 2010;
ODI 2010; Kouvelis et al. 2012; Vilko 2012; Crawford and Seidel 2013, pp. 65-69.
Risk
exposure
Sensitivity
Potential risk
consequence /
impact
Climate risk level
Adaptive
capacity
Vulnerability
Risk
Likelihood
Climate hazard risk source risk event
Risk acceptance
level
(risk appetite)
Page 25
Figure 5: Example of a risk matrix with risk levels
Figure 6: Risk matrix, including type of action in case of a risk event
92
92
Kouvelis et al. 2012, p. 9, fig. 1.2.
Risk likelihood
Very
unlikely
Unlikely
Very
likely
Likely
Moderately
likely
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Low
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Low
Medium
Medium
Medium
High
Low
High
Medium
Medium
Extreme
Medium
High
Medium
Medium
Extreme
Medium
Extreme
High
High
Extreme
Risk likelihood
Very
unlikely
Unlikely
Very
likely
Likely
Moderately
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Minor consequences
High likelihood
Severe consequences
High likelihood
Severe consequences
Low likelihood
Minor consequences
Low likelihood
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= Do nothing = Crisis management
= Contingency planning = Buffering / pooling
Page 26
Origin of risk sources and operational levels
The discussion in Paragraph 1.2 on research groupings in early risk
management
93
revealed that when talking about environmental risks, the
risk source can be approached from a technological or human activity
perspective, or from an environmental and natural resource management
perspective. A consequence of current-day increased human-nature inter-
connectivity in the natural environment is that environmental or climatic
risks will always have some component of human origin.
94
And though a
climate risk event might impact supply chains on process-level, this will
primarily be due to the knock-on effects from higher operational levels
impacted.
95
It probably is not the supply chain level where the main hazards
and risk sources originated from.
The SCOR model of the Supply Chain Council
96
- an often-used reference
model towards improving supply chain performance - does consider supply
chain risks, but mainly looks at them as internal, upstream or downstream.
It does mention the global environment, but not how to take it into
account.
97
More authors look at supply chain risk management, risk sources
and how to cope with risk events from a supply chain processes and
linkages perspective, using groupings like supply vs. demand side risks,
suppliers vs. customer, supply-demand-product-information risks, inbound
or outbound, or exogenous vs. endogenous.
98
There are others who take a broader perspective on risk sources, looking at
risk categories, risk types or risk breakdowns,
99
focusing on natural risk
events and/or macro levels,
100
or departing from the risk management
approach or strategy taken instead of the actual risk source.
101
93
See footnotes 69 and 70.
94
World Bank 2010.
95
See footnote 81.
96
SCC 2011.
97
Sinha, Whitman and Mazahin 2004; McCormack et al. 2008; Pujawan and Geraldin 2009.
98
Michalski 2000; Giunipero and Eltantawy 2004; Sinha, Whitman and Mazahin 2004; Zsidisin et. al.
2004; Kleindorfer and Saad 2005; Cucchiella and Gastaldi 2006; Faisal, Banwet and Shankar
2006a; Tang 2006; Gaudenzi and Borghezi 2006; Oke and Gopalakrishnan 2009; Trkman and
McCormack 2009; Olson 2011; Kern et al. 2012.
99
Harland, Brenchley and Walker 2000; Chopra and Sodhi 2004; Spekman and Davies 2004; ISO
2007; Ritchie and Brindley 2007; Tang and Tomlin 2008; Tang and Numaya 2011; Tummula and
Schoenherr 2011; Cagliano et al. 2012; Vilko and Hallikas 2012.
100
Wagner and Bode 2006; Reese 2007; Skelton 2007; Bessant 2008; Wagner and Bode 2008; Rao
and Goldsby 2009.
101
Franck 2007; Muzumdar 2011.
Page 27
What becomes clear is that, whichever perspective is taken, supply chains
cover, are embedded in and influenced by risk events originating from and
coming into existence on various operational levels, eventually impacting
the supply chain on process level. The overview of operational levels and
their interdependency presented in Table 2 is based on Cranfield
Universitys publications and teachings on SCRM:
102 103
Level 1
Process / value stream
The supply chain is seen as a pipeline or value stream at
process level running through and between networked
organizations. Supply chain risks originating at this level
are often linked to financial or commercial risks due to
poor supply chain performance, demand volatility and
shifting marketplace requirements.
Level 2
Assets and
Infrastructure
Dependencies
One level higher are the communications, transport and
distribution infrastructures connecting fixed sites and
facilities, i.e. linking the nodes. Assets are the assets of
these sites and facilities as well as assets used in the
various infrastructures connecting the nodes. Risks
originating at this level relate to the inter-organizational
communication, transport and distribution
infrastructures and the failure of related assets.
Level 3
Organisations and
Inter-organisational
Networks
Supply chains are viewed as inter-organizational
networks, in which organizations have their specific
business strategies and micro-economics. Power
dependencies, trading relationships, business and
sourcing strategies are among this levels main risk
sources.
Level 4
The wider
environment
The final level is the macro-economic and natural
environment, in which business takes place, assets and
infrastructure are located and supply chains flow.
Sources of risk are beyond the control of one company
or even an inter-organizational network.
Table 2: Operational levels, risk sources events and consequences
102
Cranfield University 2003a and 2003b.
103
Cranfields operational levels are comparable to Olsons (2011, page 44, Table 4.1) value hierarchy
of supply chain risks. It is not clear whether he analyzes identified risks in isolation from one
another or takes into account amalgamation of risk sources and/or knock-on effects of risk
consequences.
Page 28
Operational level 4 is where a combination of multi-level risk sources will
translate into climate risk events impacting lower organizational levels,
impacting the supply chain either directly or through knock-on effects, as
presented in Figure 7 below.
While climate risk sources can develop into risk events on their own, they
often dont take place in isolation and frequently are a compounding,
contributing factor or risk trigger adding to existing or evolving lower-level
risk sources. Climate risk events can result in direct climate risk
consequences or indirect consequences through the exacerbation of existing
organizational, infrastructural and supply chain level vulnerabilities.
An example is presented in Annex 2 in which the July-November 2011
Thailand floods and their risk consequences for the global production and
supply of computer hard disks is discussed, touching upon the use of
technical terms in risk management, the operational levels and the origins
of risk sources.
Figure 7: Operational levels, risk origin and level of control
104
104
See footnote 102.
Level of control
High level of control Low level of control
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Operational level 1
Value chain
Supply chain
Processes & workflows
Operational level 2
Asset and infrastructure
interdependencies
Operational level 3
Inter-organizational networks;
business strategies / micro-
economics
Operational level 4
The natural environment
Macro-economics
Risk event
Page 29
1.4 Supply Chain Risk Management Process
There are various Supply Chain Risk Management Process (SCRMP) models
and approaches. Some of these depart from risk management sciences
105
,
while others depart from supply chain performance improvement models or
operations research
106
. Differences are mainly found in their reach regarding
risk sources and operational levels taken into account, risk treatment,
decision making and the reviewing and feedback parts of the models. A
comprehensive SCRMP is presented on the following page in Figure 8. The
model is based on generic ISO 31000 risk management process - the most
widely used and accepted risk management standard - amalgamated with
elements of Tummala and Schoenherrs model.
Given the researchs focus on climate risk sources and taking into account
the limited research timeframe, the focus will be on the risk assessment
phase, further discussed in the following paragraph.
1.5 Supply Chain Risk Assessment
Risk assessment consists of risk identification, analysis and evaluation -
though different descriptions are used for these steps in academic
literature.
107
The risk assessment model used is visualized Figure 9 and
based on the comprehensive SCRMP presented of Figure 8.
Risk identification is part of Research Objective 1 (RO1) and Research
Objective 2 (RO2), the first focusing on identifying, recognizing and
describing climate risks and the latter aiming at identifying the perceived
extent of negative consequences of climate risks identified. Part of this
process is the identification of risk indicators used in SCRMP, which is what
Research Objective 3 (RO3) focuses on.
105
Norrman and Jansson 2004; Kleindorfer and Saad 2005; Cucchiella and Gastaldi 2006; ISO 2009a
and 2009b; SCRLC 2011; Tummala and Schoenherr 2011.
106
Sinha, Whitman and Mazahin 2004; Gaudenzi and Borghesi 2006; McCormack et al. 2008; Pujawan
and Geraldin 2009; Olson 2011; Olson and Wu 2011; SCC 2011.
107
Harland, Brenchley and Walker 2003; Kleindorfer and Saad 2005; Cucchiella and Gastaldi 2006;
ISO 2009a and 2009b; Pujawan and Geraldin 2009; Tummala and Schoenherr 2011; Kern et al.
2012.
Page 30
Figure 8: A comprehensive supply chain risk management process model
108
The identification of climate risk categories
109
used in SCRMP is also part
of Research Objective 3 (RO3). Risk consequence, risk likelihood and
risk level the risk analysis element are all part of Research Objective 4
(RO4), which also contains the element of risk ranking against risk
acceptance levels. The risk consequence is also part of Research
Objective 2 (RO2), though in Research Objective 4 (RO4) this information
is used to further analyze climate risks and come to a possible risk ranking.
108
Based on ISO 2009a and 2009b; Tummala and Schoenherr 2011.
109
See footnote 99.
Supply chain drivers
(context)
Risk assessment
Risk identification
Risk analysis
Risk measurement
Risk assessment
Risk evaluation
Risk treatment
Risk mitigation and
contingency plans
Risk control and monitoring
S
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Supply chain
management
decisions
= ISO31000 standard
(2009a and 2009b)
= Tummala and Schoenherr (2011)
Page 31
Figure 9: Supply chain risk assessment flowchart
110
1.6 Climate risks and their consequences
Despite concluding that leaner and more responsive supply chains in a
stable environment are more vulnerable to disruptions once the
environment turns unstable
111
, the question remains whether supply chain
managers perceive climate risk events as being of growing concern to their
operations.
Moreover, despite an agreement on climate change
112
is there proof of an
increase in climate-related risk events? Or are events like for example
hurricanes Ivan, Frances and Charley (2004), hurricanes Katrina, Rita and
Wilma (2005), winter storm Kyrill (2007), hurricane Ike (2008), the
Thailand floods (2011 - Annex 2), hurricane Sandy (2012) etc. isolated
anomalies and climate risk management should focus on the increased
vulnerability of supply chains instead of an increase in climate risk events.
110
See footnote 107.
111
See footnotes 36 and 81.
112
See footnotes 5, 6, 16 and 17.
Risk assessment
Risk identification
Risk analysis
Risk
likelihood
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Risk
consequence
Risk level
Risk evaluation
Risk ranking
Risk acceptance levels
Page 32
Swiss Re reinsurance and consulting company has been publicizing yearly
reports on natural catastrophes and man-made disasters and their financial
impact
113
. Their data indicates that the number of natural catastrophic
events have been rising steadily since 1970, shown in Figure 10 below. For
the last three years there have been more natural risk events than man-
made ones.
114
This in itself does not show a pattern
115
, but there has been a
constant growth in the yearly number of natural catastrophes over the past
40+ years.
Figure 10: Major global risk events 1970-2012
116
Though not providing a complete picture or one that can be aggregated
over longer time periods
117
, the data suggests an increase in the average
economic loss per natural catastrophe as presented on the following page in
Figure 11, underpinning the growing need for climate risk management.
It should be noted that earthquakes and volcanoes are also counted in the
grouping of natural catastrophes, but the research base on the linkages
between climate change and the occurrence of earthquakes and volcanoes
is still in its infancy. Early research suggests that climate change affects
113
Zanetti et al. 2004; Zanetti, Schwarz and Enz 2005; Zanetti and Schwarz 2006; Zanetti, Schwarz
and Lindemuth 2007; Enz et al. 2008; Enz, Zimmerli and Schwarz 2009; Rogers, Mehlhorn and
Schwarz 2010; Bevere, Rogers and Grollimund 2011; Bevere et al. 2012 and 2013.
114
Events are included as catastrophic or disastrous if insured claims, total economic losses or the
number of human casualties exceed certain set thresholds.
115
Given the short time frame of 3 years and also a simultaneous decrease in man-made disasters.
116
Bevere et al. 2013, p. 2, fig. 1.
117
Due to the short time frame for which data was available. See footnote 113.
Page 33
tectonic plate movement causing earthquakes, and thinning ice sheets may
trigger dormant volcanoes, but there is no consensus on these viewpoints in
the scientific community.
118
Earthquakes and volcanoes are as such not
seen as climate risk events and not taken into account in this research
study.
Figure 11: Average total economic losses (USD) per natural catastrophe
119 120 121
But are supply chain and risk management professionals concerned about
climate risk sources and their potential impact on supply chains?!
Respondents to a survey by the World Economic Forum (Figure 12) rated
natural disasters as risk sources
122
potentially having the highest
consequence on global supply chains and being outside the organizations
control. Extreme weather events were also rated as having a potentially
high impact and being outside the organizations sphere of influence.
118
Iaffaldano, Husson and Bunge 2011; McGuire 2012.
119
Based on data from resources under footnote 113.
120
Note that the data does not provide nor tries to draw any conclusions towards the existence and/or
direction of a cause-effect relation between the occurrence and magnitude of risk events and their
financial consequences, given this also depends on risk exposure, sensitivity and vulnerability. An
increase in average total economic losses can be due to an increase in occurrence and magnitude
of events, but it might be equally true that our exposure and vulnerability towards such events has
increased due to population growth, industrial growth, local contextual changes, etc.
121
A simple linear regression was added to show the upward nature of the data.
122
The publication uses the term risk triggers instead of risk sources. WEF 2012.
$0
$500
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Figure 12: Risk sources of global supply chain disruptions
123
Munich Re reported that it [2012] was the third-costliest year on record
behind 2011 and 2005
124
, for economic damages from weather-related
disasters. Companies and their stakeholders governments, employees,
communities and customers are increasingly concerned about the costs
associated with more frequent and intense floods, droughts, hurricanes and
wildfires.
125
123
WEF 2012, p. 8, fig. 2. Note that extreme weather is seen as a subset of natural disasters.
124
Crawford and Seidel 2013, p. ix.
125
Ibid.
Environmental
Natural disasters 59%
Extreme weather 30%
Pandemic 11%
Geopolitical
Conflict and political unrest 46%
Export / import restrictions 33%
Terrorism 32%
Corruption 17%
Illicit trade and organized crime 15%
Maritime piracy 9%
Nuclear / biological / chemical weapons 6%
Economic
Sudden demand shocks 44%
Extreme volatility in commodity prices 30%
Border delays 26%
Currency ?uctuations 26%
Global energy shortages 19%
Ownership / investment restrictions 17%
Shortage of labour 17%
Technological
ICT disruptions 30%
Transport infrastructure failures 6%
Uncontrollable
Influencable
Controllable
Page 35
When combining the risk matrix of Figure 6 with information on the increase
of natural catastrophes as presented in Figure 10 and Figure 11, on the
increase in occurrence of natural catastrophes as well as their financial
impact, then risk levels of climate risk events might very well move to more
critical and more likely levels then where they were positioned in earlier risk
matrices, as presented in Figure 13 below.
Figure 13: Risk matrix, including climate risk events
126
Please note that the above figure presents climate risk events in isolation,
while in real-life climate risk events are often a compounding, contributing
factors or risk triggers adding to existing or evolving lower-level risk
sources. The failure of a logistics provider for example might be due to the
providers poorly maintained asset base and dire continuity management,
though exacerbated by the impact of a hurricane on that provider.
126
Based on Kouvelis et al. 2012, p. 9, fig. 1.2 and Kouvelis et al. 2012, p. 22, fig. 2.4.
Risk likelihood
Very
unlikely
Unlikely
Very
likely
Likely
Moderately
likely
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Terrorism
Political
instability
Economic
recession
ICT
failure
Equipment failure
Fire
Transport
delays
Uncertain
demand
Supplier bankruptcy
Product
quality failure
Tornados
Earthquake
Hurricane
Flooding
Land, water,
atmospheric
pollution
Logistics provider failure
Severe weather
damage
Stock-outs
Loss of key personnel
Cargo losses
Catastrophic loss
of key supplier
= Do nothing = Crisis management
= Contingency planning = Buffering / pooling
Page 36
Climate risk events are still seen as low-probability/high-impact when
looking at specific links, nodes or assets in the supply chain, but the
likelihood of a climate risk event happening somewhere in the supply chain
as a whole is considerably higher. While the likelihood of any one event
that would have an impact on any one facility or supplier is small, the
collective chance that some part of the supply chain will face some type of
disruption is high.
127
Climate risk sources and risk events could as such move out of the area
where they result in too little consequences to justify a planned reaction
(like severe weather damage in Figure 13), and out of the current sphere
of crisis management (like hurricanes, tornados and flooding in Figure
13) into the realm of contingency planning, which will have an impact on
where the response is positioned within the organization, and how climate
risk management will inform decision making.
Crisis management in its wider definition can either refer to managing a risk
event after it has arisen as well as managing in a way that limits the
changes of risk events arising.
128
In the context of Figure 13 crisis
management entails the response after a crisis has occurred. It does include
the establishment of a crisis management team, roles, responsibilities,
authorities and communication lines, but the brunt of activities take place
when a risk event is imminent or already came to fruition and risk
consequences are visible.
Contingency planning, also called business continuity planning, is looking
at the what-if in recognition of the fact that certain climate risk sources
can come to fruition and need an adequate response. It refers to planning in
the pre-incident phase aimed to prepare plans for those events with the
highest risk levels. The first option that managers have is to list risk events
that can lead to disruption and prioritize them, while the second option is to
list possible risk events and analyze their causes and consequences. The
first option focuses on reducing the likelihood of a risk event impacting,
which is useful when planning and (re-)designing your supply chain, while
the latter is more useful when developing contingency plans.
129
127
Sheffi 2005b, p. 26.
128
Allinson 1993; Farazmand 2001.
129
Sheffi 2005b.
Page 37
Contingency or continuity plans generally include the following elements:
1. Leadership succession information
2. Pre-delegation of emergency authorities
3. Emergency action steps, checklists, action lists and operating
procedures identifying emergency assignments and responsibilities
4. Primary, alternate and backup emergency operations facilities
5. Vital records management and data procedures
6. Protection of resources, facilities and personnel.
130
1.7 Climate risk indicators
Key to making climate risk management operational in the context of supply
chains is the examination of past climate risk sources and events, current
trends and future climate risk projections
131
in the light of supply chain
vulnerabilities. This also indicates a difference between key (risk)
performance indicators (KPI) and key risk indicators (KRI), the former
focusing on past performance and being lagging indicators, while the latter
also incorporates current trends and future projections by means of
leading indicators to serve as early warning indicators signalling the need
for action to be taken.
132 133
However, current risk management plans often depart from a historical risk
picture and do not take into account the increasing intensity and frequency
of evolving climate risk events.
134
The IPCC reports
135
provide long term
climate risk indicators and predications but their long term vision and
regional horizons are often difficult to disaggregate into short-term,
context-specific data needed for risk management and business decision-
making. Companies struggle with what to assume about the changing risk
profile of extreme weather. Some underestimate future risks by simply
assuming that past events will be repeated in the future, or use historical
trends and factor in a margin of safety (e.g., a 100-year event will become
a 50-year event). Others look at climate assessments (e.g., typically
130
ASIS 2005 and 2009; NFPA 2010; Lerbinger 2012.
131
Crawford and Seidel 2013.
132
On key (risk) performance indicators (KPI) vs. key risk indicators (KRI): Immaneni, Mastro and
Haubenstock 2005; Beasley, Branson and Hancock 2010; IRM 2010.
133
On lagging vs. leading indicators: Brewer and Pojasek 2013.
134
See footnote 130.
135
See footnote 5
Page 38
scenarios contained in the IPCC assessments), but the scale of these
assessments tends to be too large to be useful for companies evaluating
individual facilities and they are only undertaken every five to seven
years.
136
Apart from climate risk sources, risk sources on all operational levels having
the potential to ameliorate climate risk consequences should be taken into
account. The other way around is true as well, climate risk sources can also
exacerbate or be a trigger towards other risk sources on all operational
levels and those that can be triggered by climate risk events should be
taken into account as well.
When developing an effective set of key risk indicators (KRIs) both
climate-related as well as non-climate-related, leading as well as lagging
the goal is to identify those metrics that provide useful insights into
potential risk sources and events that may impact an organizations
objectives and financial bottom line.
137
Some research, referenced by
Sheffi,
138
suggests that based on the power law probability distribution one
could observe more frequently occurring smaller risk events to assess the
odds of a high-impact/low-probability risk event taking place.
In the case of indicators measuring the management of a certain risk pre-
incident or anticipatory as well as reactive, these are called key control
indicators (KCI). Examples are the number of contingency plans updated,
the number of contingency plans tested, etc.
139
There are various explanations and definitions on the properties of risk
indicators
140
, but most of the properties used can be captured within the
SMART criteria
141
Specific, Measurable, Attainable and action-oriented,
Relevant, and Time-bound often used in performance management and
further explained in Table 3 on the following page.
136
Crawford and Seidel 2013, p. 21.
137
Beasley, Branson and Hancock 2010; IRM 2010.
138
Sheffi 2005b, p.49.
139
IOR 2010.
140
Immaneni, Mastro and Haubenstock 2005; Lam 2005; Shanin and Mahbod 2007; IOR 2010;
Crawford and Seidel 2013.
141
Poister 2003; ANAO 2011; Shanin and Mahbod 2007.
Page 39
Indicator properties
Specific Should be clear and unambiguous in what it is measuring, with
a specific purpose and tied to objectives and specific risk /
indicator owners
Measurable Capable of being quantifiably measured with a high level of
certainty and on a repeated, comparable basis, by means of
consistent methodologies and standards
Attainable Attainable in that it can be measured simply and reasonably
cost-effective, and the data should be relatively easy to
interpret and understand in support of management decisions
and actions
Relevant Relevance to what is being monitored, linked to risk acceptance
levels and evidence-based risk decision-making.
Analytically sound trigger levels exist and these are linked to
clear escalation criteria, including risk / indicator owner and
contingency planning documentation
Time-bound Should be measured on specific moments in time and tell
something about a predefined and relevant period.
The indicator has sufficient lead to either prevent or inform
action in the case of a risk event occurring
Table 3: SMART indicator properties
142
Immaneni, Mastro and Haubenstock
143
do present a gap assessment
template worth mentioning, based on Six Sigma tools, to score the
appropriateness of indicators to serve as key risk indicators. By scoring
seven questions an indicator is assessed on its appropriateness, and three
of these questions should be added to the SMART criteria in relation to
climate risk indicators and operationalizing climate risk sources and events:
- Do trigger levels exist and if so, are they analytically sound?
- Are there clear escalation criteria tied to the trigger levels?
- Is the metric leading or lagging?
These questions have been added to the information in Table 3, in italic.
142
Poister 2003; Immaneni, Mastro and Haubenstock 2005; Shanin and Mahbod 2007; ANAO 2011.
143
Immaneni, Mastro and Haubenstock 2005, p. 43, fig. 1.
Page 40
As an example; Bayer AG a global conglomerate with core competencies
in the fields of health care, agriculture, and high-tech materials uses
BayRISK, which is a centralized risk management database. A team of 18
staff members work solely on environmental risks with a focus on extreme
weather risk sources, company-internal awareness on how these link to the
business, including indicators on risk management and informed decision-
making. Research institutes develop weather projections for Bayer
locations, informing 10- to 20-year planning horizons. The two main climate
risk indicators used are: changes in precipitation extremes and droughts
(PR1), and changes in precipitation patterns (PR2). Other indicators focus
on financial risks linked to climate risk sources and procedures in place for
sustainability performance and risk management.
144
Today there is no one standard approach for conducting a business
vulnerability assessment,
145
towards climate risk events, as companies
use a wide range of approaches differing both in scope and methodology.
They use a multitude of data and tools, including past climate data,
experience with recent impact events, and the projections of climate
models. This diversity of approaches indicates that efforts are in their early
stages of development.
146
The insurance industry has been exploring how to measure operational
risks
147
for a while now.
148
Commercial insurance companies base their
insurance premiums on data on risk likelihoods and consequences, and how
risk events affect exposed assets insured. Munich Re for example has
developed climate risk models in which climate change is taken into account
in extreme weather events.
149
But such calculations are a firms proprietary
information. On the other hand, it is hard to say whether a string of events,
for example hurricanes, are a low probability drawing from an unchanged
distribution
150
or coming from a shift in distribution due to climate change.
Insurance premiums almost double when data on risk event likelihood and
144
Bayer 2012 and 2013; Crawford and Seidel 2013, p.65.
145
Crawford and Seidel 2013, p. 26.
146
Ibid.
147
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and
systems, or from external events. Basel 2001.
148
Ceske, Hernndez and Snchez 2000; Pittock 2010, p. 266; World Bank 2010, pp. 141-168.
149
Seifert and Lindberg 2012, p. 3.
150
World Bank 2010, p. 147.
Page 41
consequences are ambiguous as opposed to specific.
151
It is that insurability
and a mutual need for quality data that might drive partnerships between
insurance companies and companies developing their SCRMP and related
indicator sets towards climate risk events.
The aim of this research study is not to develop a business vulnerability
assessment tool or to develop climate risk indicators, but to identify climate
risk indicators and related risk categories to be used in companies Supply
Chain Risk Management Process (SCRMP). Nevertheless it should be clear
what is being perceived as good climate risk indicators.
1.8 SCRM and Management Decision-Making
Going back to the risk management introduction and basic risk
management process presented in Paragraph 1.2 it becomes clear that risk
management is not necessarily about eliminating risks, but about identifying
risk sources, risk events that might occur, their likelihood of occurrence and
possible risk consequences, and incorporating that knowledge into the
organizations decision-making processes.
Crisis management and contingency planning were both mentioned in
Paragraph 1.6 as organizational responses towards climate risk events and
their consequences, in which the latter looks at the what-if in recognition
of the fact that certain climate risk events need an adequate response,
planned before a risk event and related consequences materialize. With the
focus on management decision-making in Research Objective 6 (RO6) it is
assumed that SCRMP results should always instigate pre-incident
management decision-making. Even if the conclusion would be to opt for a
do nothing strategy or move the treatment of possible risk consequences
towards the realm of post-risk event crisis management, then that decision
should be taken pre-incident.
151
Ibid., p. 148.
Page 42
Management decision-making and uncertainty
Decision making may be defined as intentional and reflective choice in
response to perceived needs.
152
Deterministic decision-making models look
at the decision and its outcome alone, while probabilistic models do not only
look at the decision and its outcome but also take into account the amount
of risk involved. Very few management decision-making situations are
taking place with perfect information, i.e. a situation in which all is known
and there is no risk involved. Risk management involves determining the
likelihood of risk sources developing, risk events occurring and their
possible consequences impacting the organization. This is where probability
and likelihood substitute complete knowledge.
153
The possible consequences of climate risk events deal with future risk
events and their consequences and are as such subject to uncertainty. The
probability of occurrence of continued climatic change is very likely to be
virtually certain
154
, what is lacking is a high level of certainty regarding the
increasing frequency and intensity of extreme weather events for specific
locations in which organizations operate
155
.
Weinhofer and Bush come to three levels of knowledge that can be
distinguished, based on the level of certainty about the magnitude of
climate risk consequences. This is visualized in Table 4 on the following
page.
Especially those risk consequences not yet fully anticipated are often
treated with a sit and wait adaptation strategy.
156
This is especially true for
low-likelihood/high-impact climate risk events for which the likelihood is
judged as very low and/or the cost of a planned response is deemed too
high.
157
However, with the occurrence of climate risk events increasing
158
,
more is being known about their potential risk consequences and proactive
adaptation strategies and contingency planning should be sought.
152
Kleindorfer, Kunreuther and Schoemaker 1993, p. 3.
153
Miller 1992; Kleindorfer, Kunreuther and Schoemaker 1993; Adams 1995; Golub 1997; Ben-Haim
2001; Taghavifrd, Damghani and Moghaddam 2009.
154
Stern 2006; IPCC 2007a, 2007b, 2012 and 2014.
155
Winn et al. 2011; Linnenluecke, Griffiths and Winn 2012; Weinhofer and Bush 2012.
156
Berkhout, Hertin and Gann 2006; Dovers and Hezri 2010; Berkhout 2012.
157
Sheffi 2005b.
158
See footnote 116.
Page 43
Knowledge levels and risk consequence certainty
1. Experienced risk consequence: where there is a level of certainty due to
past experiences and quality forecasts of potential consequences. E.g.: energy
and cooling water cost will possibly go up in areas where average precipitation
goes down, especially if there are other pressures on energy and water
consumption in the area.
2. Expected risk consequence: the level of certainty is bounded by the
assumptions, scope and reliability of considered assessment models. Scenario
analysis in combination with climate forecasts can paint a rough picture of the
range of potential climate risk consequences.
E.g.: short periods of extreme precipitation can result in transport disruptions
due to flooding. Extreme droughts can result in disruptions in energy supply,
due to lower energy production and increased energy need due to cooling
requirements.
3. Not yet fully anticipated risk consequence: there is limited knowledge on
the magnitude of potential risk consequences. The probability of occurrence
may be known for continued changes of climate means, but the exposure to
the potential negative impacts can only be assessed with limited reliability.
Table 4: Knowledge levels and risk consequence certainty
159
Supply chain risk response strategies
Researchers who explore supply chain risk management, risk sources and
how to cope with risk events from a supply chain processes and linkages
perspective mainly look at supply chain risk response strategies that fit the
processes and linkages focus.
Supply chain risk response strategies might focus on capacity increase,
buffering and pooling to create redundancy,
160
direct risk avoidance by
contracting out,
161
risk management collaboration, information sharing and
closer relationships with key suppliers
162
, and supplier diversification,
supplier capacity increase and supply decentralization in order to increase
flexibility.
163
159
Based on Weinhofer and Bush 2012, pp. 5-6.
160
Chopra and Sodhi 2004; Giunipero and Eltantawy 2004; Sheffi 2005a.
161
Kleindorfer and Saad 2005; Xia and Chen 2011; Weinhofer and Bush 2012.
162
Giunipero and Eltantawy 2004; Norrman and Jansson 2004; Zsidisin et. al. 2004; Kleindorfer and
Saad 2005; Sheffi 2005a; Faisal, Banwet and Shankar 2006a and 2006b; Oke and Gopalakrishnan
2009; Trkman and McCormack 2009; Ghadge, Dani and Kalawski 2012.
163
Chopra and Sodhi 2004; Oke and Gopalakrishnan 2009; Trkman and McCormack 2009.
Page 44
Popular risk management literature often talks about the 4Ts of risk
response or control, being Tolerate, Treat, Transfer and Terminate.
164
Tomlin as well as Weinhofer and Bush come to three risk response
strategies
165
, with some overlap as well as dissimilarities (Table 5). Both
papers look at financial risk mitigation and operational risk mitigation and
avoidance, whereas there is a difference in Tomlin looking at operational
contingency planning and Weinhofer and Bush focusing on risk adaptation
measures. One could argue that operational contingency planning is also a
form of risk adaptation.
Tomlin vs. Weinhofer and Bush risk response strategies
Tomlin Weinhofer and Bush
Financial mitigation (Transfer) Transferring climate risks financially
(Transfer)
Operational mitigation (Transfer) Avoiding climate risks through risk
mitigation strategies and measures
(Transfer / Terminate)
Operational contingency (Treat) -
- Reducing climate risks through risk
adaptation strategies and measures
(Treat)
Table 5: Tomlin vs. Weinhofer and Bush on supply chain risk response strategies
166
Mitigative risk response strategies focus on limiting risk exposure, whereas
adaptive strategies focus on decreasing sensitivity and increasing adaptive
capacity.
167
Both in the end aim to reduce or alleviate the possible
consequences a risk event has on the supply chain. Risk avoidance is also a
form of risk mitigation, though it focuses on limiting risk exposure by not
doing certain activities at all or outsourcing those activities and
responsibilities.
164
IRM 2010, p. 6.
165
Instead of risk response strategies, they do talk about risk mitigation strategies in the sense of
reducing or alleviating the possible consequences of a risk event. Not all strategies necessarily
mitigate exposure to the climate risk event.
166
Based on Tomlin 2006; Weinhofer and Bush 2012, pp. 12-13, table 5.
167
Based on the adaptation and mitigation definitions as provided in the Glossary. See footnotes 50
and 51.
Page 45
Risk analysis
Risk
likelihood
Risk
consequence
Risk level
Risk evaluation
Risk ranking
Risk acceptance
levels
Risk treatment
P
o
s
s
i
b
l
e

m
e
a
s
u
r
e
s
Do nothing
Crisis management
Contingency planning
/ Business continuity
planning
Financial risk transfer
hedging / mitigation
Incl. risk avoidance
Incl. risk pooling
Operational risk
adaptation
Operational risk
mitigation
Based on the 4Ts, the risk response strategies identified in Table 5 and the
management decision-making options discussed in Paragraph 1.6, Figure 14
below shows the various risk treatment options available to management
and influencing management decision-making.
The options to do nothing and to focus on crisis management move
decision making post risk event, while all other risk treatment options do
require some level of planned decision-making and action before a climate
risk event and risk consequences occur.
Figure 14: Risk treatment options
Financial risk transfer and risk avoidance as part of operational risk
mitigation do not necessarily reduce the actual exposure of the supply
chain to a climate risk event. These risk treatment actions transfer financial
implications and responsibilities towards the insurance company or to a
contractor hired to focus on a certain element of work and to take related
risk responsibilities. Risk avoidance can also result in no risk transfer if
certain activities will not be pursued at all.
A last option to mention is risk pooling, which focuses on demand risks. An
important part of this strategy is inventory pooling.
168
If inventory pooling
168
Sheffi 2005, pp. 101-103; Oeser 2010.
Page 46
would result in inventory centralization then this poses a risk increased
supply chain impact when that centralized warehouse would be hit by a
climate risk event as much as it is a risk treatment option towards climate
risk events. Risk pooling as aggregated risk analysis throughout the supply
chain, including all supply chain nodes and linkages, can be seen as
adaptive as well as mitigative risk treatment, depending on the resulting
action.
1.9 A critical note on (risk) perception
This report started with the research objectives and RO2 was written as to
identify the perceived extent of negative consequences of climate risk
events on the supply chains impacted. In Paragraph 1.2 it was said that
differences in risk acceptance have more to do with differences in risk
perception rather than differences in attitude towards (perceived) risks. This
was followed in Paragraph 1.6 with the conclusion that leaner and more
responsive supply chains in a stable environment are more vulnerable to
disruptions once the environment turns unstable, but the question remained
whether supply chain managers perceive climate risk events as being of
growing concern to their operations.
Perceived risk may very well differ from objective
169
risk assessments but
they are clearly a reflection of real risks, especially when risk sources are
known.
170
It is also questionable whether there is such a thing as true
objective likelihood
171
when looking at the chances of future climate risk
events occurring. Smithson states that if there is any approach to
ignorance that bears a creditable claim to generalizability and rationality
simultaneously, it is probability. Virtually all modern accounts of uncertainty
refer to the concept and theory of probability as a benchmark.
172
Unlike
mathematical functions, probability theories have their limitations as
predictive risk management tool,
173
especially when predicting the likelihood
of future climate risk events occurring.
174
169
Objective risks are those risks that exist independent of an individuals knowledge and worries of
the source of the risk.
170
Sjberg 1995.
171
Objective likelihood of a future risk event occurring is calculated by either induction or deduction.
172
Smithson 1989, p. 41.
173
Bernstein 1996.
174
See footnotes 144, 151 and 150.
Page 47
However, the occurrence of low-probability risk events
175
over which people
have little control
176
tends to be overestimated in peoples perception,
177 178
though people who have personally experienced a certain risk event in the
past tend to be more realistic in their risk perception for a while.
179 180
Without diving into cultural, societal and biological risk perception
differences it is safe to assume that the perception of the likelihood of
climate risk sources developing into risk events and the perception of their
potential impact tend to be slightly more overestimated than the perception
of other general risk sources
181
developing into risk events, due to their low-
probability nature and a lack of control people have over them. This does
not necessarily affect the usefulness of the data and the comparability
between risk sources, given there is an inherent predictive element to
probability analysis and its use as predictive risk management tool has its
limitations.
175
Lichtenstein et. al 1978; Kruger and Burrus 2004.
176
Rachman 1990.
177
McKenna 1993.
178
An example is the risk perception of getting involved in an airplane crash; while the objective risk is
very small, many people are still afraid to fly given their risk perception.
179
Dolinski, Gromski and Zawisza 1987; Burger and Palmer 1992.
180
People rate themselves as better drivers than others, or they dont expect to die of smoking,
though this unrealistic optimism changes once they do have an accident or once a family member
dies of cancer.
181
See Figure 12 for an overview of other risk sources impacting global supply chains.
Page 48
CHAPTER 2 RESEARCH METHODOLOGY
The research studys methodology choice and utilization is discussed in this
chapter. Informed by the research problem and objectives, as stated in
Paragraph I.4, and supported by the nature of the data covered in the
literature review the choices made towards research type and design are
explained comprehensively in this chapter.
2.1 Introduction
The main distinction in research approaches is the one between quantitative
and qualitative approaches linked to two research paradigms, respectively
labelled as positivism and phenomenology. A paradigm can be seen as the
researchers world view, a general conception of the nature of scientific
approach used, or simply a school of thought.
182
Positivism, or deductive research, moves from a general law to a specific
case, top-down, outside-in or from theory to facts. Whereas
phenomenology, or inductive research, moves from a specific case or series
of observations to the formulation of general law, bottom-up, inside-out or
from facts to theory. The first approach is used to test existing theories, not
to create new ones, while phenomenology often focuses on developing new
ideas through induction of data.
183
It should be mentioned that exploratory
research is also qualitative in nature, but not part of the phenomenology
paradigm. Key features of both paradigms are presented in Table 6 on the
following page, showing that both approaches have their specific strengths
and limitations.
A mixed-method research approach not unknown in logistics and supply
chain research
184
was chosen for this research study, applying
quantitative and qualitative approaches within the research design to
develop different perspectives, triangulate research findings and reduce the
182
Gummesson 2000; Mangan, Lalwani and Gardner 2004.
183
Mangan, Lalwani and Gardner 2004; Kovcs and Spens 2005; Parasuraman, Grewal and Krishan
2006; Blumberg, Cooper and Schindler 2008; Srivastava and Hopwood 2009; Saunders, Lewis and
Thornhill 2012.
184
Nslund 2002; Mangan, Lalwani and Gardner 2004; Kovcs and Spens 2005; Sanders and Wagner
2011; Golicic and Davis 2012.
Page 49
risk of method bias.
185
The approach is further explained on the following
pages, but by combining the strengths of both approaches and validating
results through an iterative process of data collection and verification, the
design provides a stronger final result within the given time frame.
Positivist paradigm Phenomenological paradigm
Basic beliefs The world is external and
objective
Researcher is independent
Science is value-free
The world is socially
constructed and subjective
Researcher is part of what is
being researched
Science is driven by human
interest
Researcher
should
Focus on facts
Look for causality and
fundamental laws
Reduce phenomena to simple
events
Formulate hypothesis and then
test them
Focus on meanings
Understand what is happening
Look at the totality of each
situation
Develop ideas through
induction of data
Preferred
methods
include
Operationalising concepts so
that they can be measured
Taking large samples
Random selection of subjects
Using multiple methods to get
different views of phenomena
Small samples investigated in-
depth or over time
Purposive selection of subjects
Methodologies Cross-sectional studies
Experimental studies
Longitudinal studies
Questionnaires
Models and simulation
Action research
Case studies
Ethnography
Construct elicitation
Grounded theory
Hermeneutics
Participative enquiry
Analysis Statistical Interpretive
Table 6: Main research paradigms
186
185
Method bias is defined as unexpected variations in findings that are attributable to the measuring
instrument / measurement method rather than to the constructs represented by the measures.
186
Based on the resources in footnotes 183 and 183.
Page 50
The choice for a mixed-method research approach was inspired by the work
of Luyt
187
on developing a cyclical mixed-method measurement framework
as well as the research of Newman, Lim and Pineda
188
on content validity
and mixed-method research approaches.
Luyts work focuses on incorporating both qualitative and quantitative
elements in a framework of measurement development, validation and
revision
189
. He moves iteratively through a number of steps to refine the
research concept and the research studys operationalization. The latter he
refers to as indicator though it includes the definition, operationalization as
well as the measuring instruments related to the research concepts. The
main elements of his framework are presented in Figure 15 below.
What has been taken over from this model is first of all the need to ground
and conceptualize the research through a staged approach, further
discussed below and in the following paragraphs. Secondly it shows the
importance of refining the indicators through discussion, which inspired the
development of an expert panel (See Annex 1) for reflection and refinement
throughout the iterative research process. The panel was used in interviews
(Paragraph 2.3) as well as final reflection (Paragraph 2.5).
Figure 15: Luyt's 'Measurement development, validation, revision framework'
190
187
Luyt 2012.
188
Newman, Lim and Pineda 2013.
189
Luyt 2012, p. 298.
190
Ibid.
Level 1: Establishing the concept
Level 2: Systematized concept
Level 3: Indicators
Level 4: Qualitative and quantitative
analyses
Conceptualization Revisiting background concept
Operationalization Modifying systematized concept
Discussing indicators Refining indicators
Page 51
Newman, Lim and Pinedas research focuses on content validity
191
. Their
vision is that data by nature is developed through a mix of interacting
qualitative and quantitative methods, thus a well-developed mixed-method
approach will increase content validity. They present a mixed methods
research interactive continuum
192
for which a simplified version is
presented below in Figure 16.
Taken over from their research is the need for re-validation, which was
done by various verify & refine loops; through an iterative literature review
process (Paragraph 2.2) as well as the earlier mentioned uses of an expert
panel. Secondly the qualitative-quantitative research sequence was taken
over, with the inclusion of a feedback loop towards the expert panel after
data analysis to increase the self-criticality of the findings.
Figure 16: Simplified version of Newman, Lim and Pinedas Mixed methods
research interactive continuum
193
The iterative mixed-method design of this research in which stages of
data collection and reflection are successively utilized to inform, verify and
191
See footnote 187. Content validity being the level to which certain measures, measuring
instruments and questions are actually measuring all the elements of a subject area intended to be
assessed.
192
Ibid., p. 248.
193
Ibid.
Topic of
interest
Purpose /
question
Speculation /
Theory /
Research lens
Area of interest / theoretical perspective
Review
literature
Define
terms
Define
research
questions
Knowledge base for research endeavour
Qualitative research
elements
(start of research)
Quantitative research
elements
(continued research)
Page 52
refine subsequent research stages is visualized on below in Figure 17. The
research stages, measuring instruments used in each stage and their
interrelation are detailed in the subsequent paragraphs.
Figure 17: The iterative mixed-method research design
194 195
194
Adapted from Luyt 2012, and Newman, Lim and Pineda 2013.
Introduction
First literature review:
Orientation & Exploratory review
Climate change
Introduction
Research questions,
aim and objectives
Chapter 1
Second literature review:
Focused review Climate change &
SCRMP
Verify &
refine
Expert panel Interviews
Glossary
Terms and definitions
Chapter 1
Second literature review:
Refined review SCRMP
Chapter 3 - Data analysis
Chapter 4 - Discussion
Chapter 3 Chapter 4
Inclusion of expert panel feedback
Chapter 5
Conclusions and
recommendations
Verify,
refine
Verify &
refine
Internet-mediated
questionnaire
Page 53
Mixed-method research design bias, reliability and validity
Positivist and phenomenological approaches as well as mixed-method
approaches all have their specific types and levels of bias.
196
Design bias
refers to a research studys failure to identify and treat reliability and
validity problems inherent to the research design. To tackle design bias, the
limitations of the research have been clarified in the Introduction and the
bias, reliability and validity of the research as a whole and each of the
research stage and related measuring instrument specifically are explained
on the following pages.
The researchs reliability refers to the confidence we can have in the
consistency of the researchs measuring instruments. In positivist research
this translates into the replicability or reproducibility
197
of findings,
198
thus
the liking for quantitative research methods in the positivist approach. In
phenomenological research reliability refers to the stability of responses
towards the use of multiple coders to analyze transcript data
199
as well as
the impact of the researchers role,
200
though the latter being mostly of
importance in a (participatory) observation setting.
With one person coding the answers there were no inter-coder bias issues.
Validity is a traditional positivist construct and defined as the extent to
which measurements and conclusions are well-founded and correspond
accurately to the real world. Positivist research focuses on internal validity
the correct proof of causal-relationships and external validity the
generalizability of findings. In phenomenological research there are different
views on validity, ranging from scrapping the concept all together
201
to new
concepts being developed to capture validity.
202
The external validity and
how this has been conceptualized in this mixed-method design is further
discussed in Paragraph 2.7 on generalizability.
195
Informed by Thompson and Walker 1998; Mangan, Lalwani and Gardner 2004; Srivastava and
Hopwood 2009; Denzin and Lincoln 2011; Miles, Huberman and Saldaa 2013.
196
Bias is defined as anything that could produce unexpected variations in the findings and as such
poses a threat towards the research findings reliability and validity.
197
The debate on replicability vs. reproducibility is still ongoing. Drummond 2009.
198
Saunders, Lewis and Thornhill 2012, p. 192.
199
Creswell 2012, pp. 253-255.
200
Miles, Huberman and Saldaa 2013, p. 312
201
Dellinger and Leech 2007, p. 313; Wolcott 2008.
202
Dellinger and Leech 2007, pp. 313-321; Creswell 2012, pp. 244-250.
Page 54
Whittemore, Chase and Mandle
203
provide a synthesis on validity in
qualitative research and come to ten criteria with some conceptual overlap.
This research took into account three phenomenological validity concepts,
given their relevance towards the research design applied:
1. Substantive validation: Providing proof of understanding of the topic and
documentation of this understanding through a rigorous and conceptually
balanced literature review process.
204
The literature review is a stepped
approach, further explained in Paragraph 2.2. The results of the first
literature review form the foundation of the research problem, questions
and objectives, visible in the researchs Introduction. A second literature
review was executed to further refine research questions and objectives
and to inform the subsequent steps of the iterative research design.
Chapter 1 provides the results of the second literature review.
2. Criticality validation: Showing a critical appraisal for all aspects of the
research, the sequence of measuring instruments and research findings
through a credible data collection and analysis process.
205
The choice and
foundation for the mixed-method research design has been explained
earlier in this paragraph and in-depth explanations of each research step
can be found in subsequent paragraphs.
Criticality validation also includes self-criticality by collecting criticism,
being open to different viewpoints and the peer reviewing of findings.
206
The researchs expert panel (Annex 1), further detailed in Paragraph 2.3,
reflected on the literature review through 12 expert panel interviews. Full
interview transcripts were shared with the interviewees afterwards for
validation and further commenting. All interviewees received a narrative
summary of the final interview results to reflect on and critique. They
also received a draft outline of the internet-mediated questionnaire,
further detailed in Paragraph 2.4, to comment on. The feedback received
on all commenting cycles was used to improve subsequent research
steps. A final round of expert panel reflection took place online after the
data analysis was completed. Comments and critique on the data analysis
have been incorporated into the final report.
203
Whittemore, Chase and Mandle 2001.
204
Ibid., p.531; Creswell 2012, p. 248.
205
Eisner 1991, pp. 110-112; Whittemore, Chase and Mandle 2001.
206
Eisner 1991, pp. 112; Creswell 2012, p. 246.
Page 55
3. Credibility validation: Providing evidence that allows for having
confidence in the measuring instruments, analysis and conclusions
through referential adequacy, data triangulation and the peer reviewing
of findings.
207
Referential adequacy refers to iterative steps of data
analysis in which earlier results are added to the data analysis to test the
validity of the findings. Results of the expert panel interviews, explained
in Paragraph 2.3, are first analyzed separately from the results of the
subsequent internet-mediated questionnaire. After a first analysis, results
of both the interviews and the questionnaire are taken together to test
the validity of the findings and triangulate results. As explained under the
previous header on criticality validation there is an iterative feedback
and commenting process with the researchs expert panel members
(Annex 1). After the internet-mediated questionnaire, further detailed in
Paragraph 2.4, interview data was also shared with the expert panel for
peer-reviewing and commenting on the results as well as the analysis
process.
Each research stage, each measuring instrument applied, has its specific
method bias, which is discussed in the subsequent paragraphs for each
research stage and related measuring instrument individually. Steps taken
to minimize bias and increase validity in each method applied are explained,
to make sure the iterative research design does not result in bias from one
method impacting and being reinforced by a subsequent research stage.
208
Method and data triangulation
The combining of quantitative and qualitative methods to verify and
complement research findings is known as method triangulation
209
and
used to increase the research studys reliability and validity by confirming
data generated by one method through the results of another method.
207
Lincoln and Guba 1985, pp. 213-219; Patton 2001, p. 247; Cresswell 2012, p.248.
208
Mangan, Lalwani and Gardner 2004; Miles, Huberman and Saldaa 2013.
209
Thompson and Walker 1998, p. 68; Mangan, Lalwani and Gardner 2004, p. 569; Tharenou,
Donoheu and Cooper 2007, p. 131 and 257; Harrison and Reiley 2011, pp. 8-10; Oslund et al.
2011, p. 371.
Page 56
Data triangulation
210
is used by collecting data from different sources
being the literature review, expert panel and questionnaire respondents to
increase data validity and reliability by collecting data from three
independent sources that either agree, or at least do not contradict one
another.
2.2 Literature Reviews
A literature review often forms the start and foundation of a research study,
irrespective of the study being positivist, phenomenological or mixed in
nature.
211
There are various definitions and terms to describe the activities
part of a literature review, for example critical review, research review,
research synthesis, theoretical review or meta-analysis.
212
Two types of
literature review that can be distinguished are those that are detailed
independent works on their own, like a meta-analysis, and those that form
the introduction to new research.
The aim of the literature review process was to develop the boundaries and
to shape the foundation of the research study. A first literature review
focused on the concepts and arguments forming the foundation for the
research objectives. A second literature review was developed as a critical
analysis of the existing body of knowledge and its relation towards the
research study. The latter also informed the mixed-method research design.
Literature review approach
A stepped literature review approach, presented in Figure 18 on the next
page, was devised and implemented. The review method was informed by a
selection of research science literature,
213
the most important being Dixon-
Woods et al.s approach termed critical interpretive synthesis and secondly
Miles, Huberman and Saldaas approach called data condensation.
210
Mangan, Lalwani and Gardner 2004, p. 569; Tharenou, Donoheu and Cooper 2007, p. 81 and 129.
211
A reason to not perform a literature review might be the absence of an existing body of knowledge
on the topic being researched, though that was not an issue in the case of this research study.
212
Cooper 1998; Miles, Huberman and Saldaa 2013.
213
Dixon-Woods et al. 2006; Liston 2006; Cronin, Ryan and Coughlan 2008; Barnet-Page and Thomas
2009; Saunders, Lewis and Thornhill 2012; Miles, Huberman and Saldaa 2013.
Page 57
Critical interpretive synthesis
214
was used to synthesize multi-disciplinary
qualitative as well as quantitative evidence and refine the research
questions in an iterative process.
Data condensation focused on the process of selecting, focusing,
simplifying, abstracting and/or transforming the data that appear in the full
corpus of [] materials.
215
274 pieces of literature have been evaluated in
total, of which 218 were seen as relevant to the research studys topic.
A first review was part of the proposal development stage, comprising of an
initial literature orientation and an exploratory literature review, in which 64
pieces of literature have been evaluated and used that focus on the climate
change context in relation to corporate processes and supply chains.
Figure 18: Stepped literature review approach
After formulating the initial research problem, questions and objectives, a
second literature review took place to further refine the research questions
and objectives and to inform the research design. A focused literature
review took place in which 87 pieces of literature have been used to finalize
the research questions and objectives, and to inform and aid subsequent
steps of the research design.
214
Dixon-Woods et al. 2006, pp. 38-39; Flemming 2010, p. 202.
215
Miles, Huberman and Saldaa 2013, p. 12.
Initial literature
orientation
Exploratory
literature review
Climate change
Focused literature
review Climate
change & SCRMP
Refined literature
review SCRMP
Interest
Management questions
Initial research questions
Final research questions
First literature review
Second literature review
Page 58
The final element of the second literature review further refined the
research studys focus, reviewed all previously analyzed literature and took
into account 67 new pieces of literature. Chapter 1 stems from this review
and the literature review findings informed and were validated by the expert
panel interviews, and informed the internet-mediated questionnaire.
216
Please note that the Harvard referencing system has been used to reference
all literature throughout this research report. But given the large quantity of
literature applied throughout the text, the Harvard referencing system has
been adjusted by referencing in the footnote and not the main text. This
was a consciously made alteration to improve the reports readability.
Literature review- bias and validity
Confirmation bias: People have the tendency to test ideas in a one-sided
way, focusing on one possibility and ignoring alternatives.
217
This holds true
for the way in which people search for and select literature as part of the
literature review process. The expert panel members (Further discussed in
Paragraph 2.3) were asked to reflect upon the literature review and panel
members were chosen to render different perspectives towards the research
objectives and its underlying foundation, being the literature review.
Primacy effect: Information is weighted more strongly when it appears early
in a series
218
of information reviewed. To counter-act this effect, the
literature review followed a stepped approach, in which the last part of a
previous review became the starting point for the subsequent review step.
Illusion of validity: Refers to the belief that more information generates
additional relevant data for predictions, even when it does not.
219 220
The
literature review process had a clear deadline, to make sure there would not
be an endless gathering of information. It also followed a stepped approach
to guarantee that information gathering and analysis were targeted.
216
Liston 2006; Blumberg, Cooper and Schindler 2008; Cronin, Ryan and Coughlan 2008; Klein and
Olbrecht 2011; Saunders, Lewis and Thornhill 2012.
217
Nickerson 1998.
218
Ibid., p. 187.
219
Khaneman 2011.
220
This is referred to as information bias in decision-making science, i.e. the belief that more
information will result in better decisions, even if that information is irrelevant to that decision.
Page 59
Moreover, the review was presented to the expert panel to give feedback on
its content and relevance.
Through critical interpretive synthesis
221
the research problem, questions
and objectives were refined in an iterative process, which included feedback
from the expert panel members through individual interviews (See
Paragraph 2.3). An iterative approach was also used in the second literature
review, in which data condensation
222
aimed at abstracting the right
information out of the body of knowledge used, further verified and refined
by the expert panel interviews, resulting in both substantive as well as
criticality validation.
2.3 Expert Panel Interviews
A research expert panel
223
was developed for reflection during research
design, data collection and subsequent data analysis. Annex 1 provides an
overview of the expert panel members. 12 Of the 14 experts were
interviewed. The selection of expert panel members, interview process and
bias and validity considerations are further described below.
Selection of expert panel members
The expert panel members have been chosen on their supply chain and/or
risk management expert knowledge, their opposing views and differences in
industrial sector focus. Some experts come from a sustainability
perspective, while other focus more on business continuity; some believe in
climate change, while others dont; commercial as well as humanitarian
supply chains are represented, and experts come from a variety of sectoral
backgrounds, being food, agri, non-food, health, electronics, transport and
aviation supply chains. An appropriate mix of practical vs. academic
experience and expertise, topical depth and width, and geographical focus
was also taken as point of departure when approaching experts to take part
in the researchs expert panel.
221
See footnote 213.
222
See footnote 214.
223
DSE 2005; Slocum 2005; Gossage 2013.
Page 60
The preliminary use of the expert panel discussed in this paragraph was
to explore and verify the data collection and consolidation process informed
by the literature review, with a focus on the first three research objectives
(RO1-RO3). Also considered is how the literature review data informs the
next research stage of the internet-mediated questionnaire.
Expert panel interview process
In one-on-one interview sessions
224
expert panel members reflected on the
literature review, its relation towards the research objectives and how this
informed the subsequent research step.
The interviews were developed as semi-structured non-standardised one-
on-one internet-mediated interviews to inform, verify and refine the
descriptive elements of the first three research objectives. The first research
objective is non-descriptive, but interview questions focus on describing
how climate change and extreme weather events have impacted supply
chains, to inform the development of questions for the subsequent internet-
mediated questionnaire.
The experts were informed at the interviews start about the process and
expectations, including consent on data use and privacy considerations. The
introduction and consent can be found in Annex 3. The interview protocol is
provided in Annex 4. The transcript of each interview was shared with the
interviewee for verification purposes and reflection. Verified transcripts can
be found in Annex 5. These were coded and analyzed in MaxQDA 11,
qualitative data analysis software.
225 226
224
Knox and Burkard 2009; Creswell 2012, pp. 163-166.
225
MaxQDA 11 qualitative data analysis software allows to classify, sort and arrange information,
examine relationships in the data, and combine data analysis with linking, shaping, searching and
modeling. For more information: http://www.maxqda.com/
226
The MaxQDA 11 data file will be kept for 5 years after the date of publication. The file can be
requested from the researcher by email (Dpbours@yahoo.com) for academic verification purposes.
Page 61
Expert panel interview- bias and validity
Selection bias: This generally refers to sample selections not representing
the wider population.
227
In this case, selection bias can be explained as the
selection of expert members based on the idea that those selected will
confirm existing beliefs or hypotheses. To counteract selection bias, expert
panel members have been selected with the aim to create a panel as
diverse as possible with different views and perspectives, resulting in richer
data and a more critical analysis of results.
Participation bias: In this context participation bias is a bias of some
participating more than others in the expert panel. In the case of the
interviews, all experts interviewed received the exact same questions. Of
the expert panel, 12 of the 14 members have been interviewed.
Social desirability bias: The tendency to answer sensitive questions in a way
that might be seen as favourable or socially accepted by the interviewer,
228
which is a type of bias especially impacting interviews.
229
Interview
questions have been formulated in a way they are not seen as sensitive;
there are no taboo topics, there is no socially desirable answer to any of
the questions and interviewees review the full transcript to make sure no
information will be shared that can be seen as disclosure sensitive.
Interviewer bias: Interviewer bias refers to differences between interviews
in information collection and recording,
230
as well as the misinterpretation of
the information received through these interviews. Interview questions
(Annex 4) have been tested on a small group of experts, not part of the
expert panel. They were asked to describe what they thought the questions
were asking of the interviewees. To limit misinterpretation, exact narratives
of each interview have been sent to the interviewees to verify the resulting
text. In these narratives, comments were added by the interviewer if there
were possibly ambiguous answers. These were then clarified by the
interviewee. The final narratives are available in Annex 5.
227
Collier and Mahoney 1997, pp. 59-60;
228
Tourangeau and Yan 2007.
229
Ibid., pp. 863-864.
230
Saunders, Lewis and Thornhill 2012, p. 381.
Page 62
Order-effect bias:
231
Respondents develop a frame of reference from a
previous question and carry over it to the next question.
232
The sequence of
interview questions moves from the simpler to the more complex questions.
Efforts have been made to pose questions as neutral as possible, that if any
frame of reference would be developed, this comes from the interviewees
experience and vision and not the interview questions.
Instruction bias: This type of bias occurs if unclear or no instructions are
given at the interviews start. The instructions provided to each interviewee
can be found in Annex 3. After the introduction the interviewee was given
the opportunity to ask questions regarding the process. A conscious choice
was made not to provide the questions in advance in order to get more
honest responses and not answers based on an internet-search on the
topic, instigated by receiving the interview questions in advance.
Other types of interview bias, like dominant respondent bias, refer to non-
verbal communication. 10 of the 12 interviews took place online and non-
verbal communication bias is not expected to have influenced the results.
Expert panel interviews: Feedback on the literature review
Expert panel members were asked to provide critical feedback on the
literature review. This feedback resulted in the following adjustments:
- A list of research limitations was added to the Introduction
- Bow tie risk assessment was reviewed, but not added to the review
- The 3BL part in the Introduction was condensed
- A clearer distinction has been made between climate and sustainability
risks if there was a need for clarification
- The risk management definition and choice for it was further clarified
- The description of Level 4 in Table 2 was adjusted
- A note was added to Figure 6 on the actions in case of risk events
- A note was added to Figure 11 regarding cause and effect between the
number and cost implication of natural disasters
231
Also referred to as priming effect or context effect.
232
Perrault 1975, pp. 544-545; Schober 1999, pp. 88-89.
Page 63
- A detailed explanation was added to Figure 13 on risk events often
being a mix of direct and indirect risk events and compounding factors
- Business vulnerability assessment and the insurance industry were
added to the discussion on climate risk indicators
- Avoidance was added as operational risk adaptation/mitigation
strategy, and contracting out was added as an example of avoidance
- A more in-depth analysis of research methods and choices made
- Adjustments were made to the referencing and a number of compound
statements have been divided into multiple references.
Expert panel interviews: Input towards the internet-mediated questionnaire
Expert panel members were also asked to provide input towards the
internet-mediated questionnaire, the next research stage. This feedback
resulted in the following adjustments:
- Less terminology was used in the questionnaire
- Impacted was changed to more than marginally impacted in all
questions on risk event impact
- Risk event questions focus on the respondents insights, attitudes and
perceptions on how risk events impacted supply chains
- A differentiation was added between the companys head office
location, the respondents work location and the respondents
nationality to be able to review geographic differences in answers
- Seniority questions were added to see if there will be a difference in
answers depending on seniority as well as level of responsibility
- Decision-making capability questions were expanded
- The target group was expanded to also include sustainability officers as
well as financial management, financial decision-makers.
2.4 Internet-Mediated Questionnaire
The internet-mediated questionnaire covered all 6 research objectives
(RO1-RO6). The questions were designed in a way that generates the data
necessary to answer and accomplish the research objectives, either directly
or through response analysis, as visualized in Figure 19 on the next page.
233
233
Based on English 2008, p. 11, fig. 10.1.
Page 64
Figure 19: Link between researcher and respondents
The questionnaire design process
234
, visualized in Figure 20 on the following
page, is an iterative process with various loops to get to a draft
questionnaire for pilot testing and final questionnaire.
Main steps in the questionnaire development process
1. Questions are evaluated on form and structure, seeking to balance open
and closed questions and using standardized and proven answer
categories. For example, economic sector categories follow UNDESA
International Standard Industrial Classification (ISIC) codes,
235
company
size categories are based on European business size standards,
236
likelihood categories are based on the IPCC standards
237
and accepted
5-point Likert-type scales are used for (dis)agreement statements.
238
Closed answer categories were further reviewed with a focus on
sequence of options and the MECE principle; mutually exclusive and
collectively exhaustive.
239
2. A second verification focused on relevance and wording in order to
receive meaningful and valid responses. Relevance was checked by
looking at whether the research objectives could be answered without
asking certain questions.
234
Based on English 2008, p. 13, fig. 10.2.
235
UNDESA 2008.
236
EC 2005.
237
See footnote 50.
238
A 5-point scale as answer option on one question is referred to as a Likert item. Likert scaling,
which is the sum of various Likert items, is used for the four questions on Page 3 of the internet-
mediated questionnaire (See Annex 7) focusing on authority.
239
Mutually exclusive means that not more than one individual answer option can be true at the same
time. Collectively exhaustive ensures that all answer options cover the entire realm of possibilities.
Researcher Respondent
Internet-
mediated
questionnaire
Translating data requirements into
questions and instructions
Interpreting
questions and instructions
Providing / recording
the responses
Interpreting / analyzing
the responses
Page 65
Wording focused on the introduction, relevance towards and frame of
reference of the target group, clarity, transparency, objectiveness and
complexity of questions and answer categories for closed questions.
Figure 20: Questionnaire design process
Translate research objectives
data requirements into rough
questionnaire draft
Revise the
rough draft
Check question form and
structure
Changes
Needed?
Check question relevance and
wording
Check sequencing of
questions
Check layout and appearance
Changes
Needed?
Changes
Needed?
Changes
Needed?
No
No
No
No
Yes
Yes
Yes
Yes
Other
checks
needed?
Make necessary checks
Yes
Piloting of
rough draft
No
Make changes
needed
Another
pilot
needed?
Yes
Prepare final
questionnaire
Page 66
3. The positioning of sensitive questions was considered
240
and related
questions were clustered, limiting the number of skip patterns and
funnelling questions from simple to more complex.
4. A last check focused on layout and appearance, taking into account
attractiveness, ease of use as well as professionalism. The number of
mouse clicks, mouse movements and needed key strokes were limited.
The online appearance was checked on different screen resolutions,
browsers and operating systems.
A face-to-face computer-mediated pilot test was executed with respondents
comparable to the questionnaires target population, to check points of
confusion by observing the non-verbal communication of the respondent
and being available to clarify questions.
Questionnaire target population
The target population is professionals working in the following fields:
Supply chain, logistics operations / management
Procurement, sourcing, or contract management
Organizational risk management / Risk management
Quality assurance / Quality management
Corporate Social Responsibility (CSR) / Sustainability
Financial management / Financial decision-making
Academic research on any of the above fields
Consultant / advisory function to any of the above fields
These professionals were targeted through professional supply chain
management, procurement, risk management and leadership associations,
attendance overviews of conferences and workshops, the network of the
expert panel members and online communities of practice.
240
There were no truly sensitive questions in the sense of question regarding negative social
behavior, but personal questions on gender, position and level of seniority were put at the end of
the questionnaire.
Page 67
It is hard if not impossible to provide an accurate number of the global
target population. Moreover, probability or random sampling assumes that
anyone in the population has an equal chance of being selected for the
sample. This is not true given the internet-mediated nature of the
questionnaire and the snowballing through online associations, communities
of practice and professional networks.
241
The calculation of a sample size has only been pursued to render a certain
level of response validity, not to generalize towards a global population of
specialists. With a confidence level of 95% and a 5% margin of error a
sample size between 377 and 385 responses was pursued.
242
In the end,
393 fully completed surveys were received, resulting in a 4.89% margin of
error if random sampling would have been pursued.
The questionnaire introduction, including an identification of the researchs
target population, can be found in Annex 6. The internet-mediated
questionnaire is represented in Annex 7, including the explanation on the
skip-logic applied. IBM SPSS Statistics 22
243
was used for the data reviewing
and analysis, while MS Excel 2007 was used for developing the graphical
representations. Given its extensive size, the codebook and dataset have
not been added to this report, but are available upon request.
244
Internet-mediated questionnaire - bias and validity
Bias and validity elements discussed earlier will not be conceptually
explained again, but measures to limit their influence have been discussed if
relevant towards the questionnaire.
241
Only those global professionals with access to internet and being part of associations, communities
of practice and/or professional online networks have a chance of filling out the questionnaire.
242
A population size of 20,000 (ss=377) to infinity (ss=385) was used for the calculation.
ss = [Z
2
x p x (1-p)] / c
2
= [(1.96)
2
x 0.5 x (1-0.5)]/(0.05)
2
, ss_20K = ss / [1 + ((ss 1)/20K)]
243
SPSS is among the most widely used programs for statistical analysis in social science.
244
The SPSS 22 questionnaire codebook and dataset will be kept for 5 years after the date of
publication. The file can be requested from the researcher by email (Dpbours@yahoo.com) for
academic verification purposes.
Page 68
Selection bias:
245
The sample is not assumed to represent a specific target
population given earlier presented research constraints towards both the
population and the questionnaires sample. This will however not impact the
internal validity given that questionnaire non-participation is not expected
to be linked to the independent variables,
246
i.e. not having an online
presence as professional is not proven to be related to the occurrence and
impact of climate risk events and related risk management.
Non-response bias: Strongly related to selection bias, non-response bias
occurs when non-respondents differ from respondents in what they would
have answered.
247
Given it is impossible to know what non-respondents
would have answered and not knowing the exact target population it will be
hard to identify differences between respondents and non-respondents in
order to provide meaningful commentary on non-response bias.
Response bias: Response bias is a questionnaires equivalent to social
desirability bias in interviews, e.g. respondents answer in a way they think
the research wants them to answer rather than according to their own
beliefs. Questions are developed to be non-leading and the questionnaire is
being administered anonymously limiting the risk of pleasing answer
behaviour.
Order-effect bias:
248
The question sequence moves from the simpler to the
more complex questions. Efforts have been made to pose questions as
neutral as possible, that if any frame of reference would be developed, this
comes from the respondents experience and vision and not the questions.
Instruction bias: Clear instructions were provided at the start of the
questionnaire and can be found in Annex 6.
2.5 Expert Panel Reviewing
Following the internet-mediated questionnaire an internet-mediated expert
panel reviewing of a draft data analysis enhanced the analysis, findings and
conclusions and resulted in new analytical insights through dialogue.
245
See footnote 227.
246
Cuddeback et al., p. 21.
247
Whitehead, Groothuis and Blomquist 1993, p. 215.
248
See footnotes 232 and 232.
Page 69
The experts of the expert panel interview were extended with a number of
experts who indicated to be interested in participating in the questionnaire
follow-up. The reviewing exercise was flat-structured, with no specific tasks
assigned to individual members and discussion open to be thought
provoking to limit the possibility of collective shrinking
249
. The researcher
facilitated the reviewing exercise, though with no management line towards
any of the reviewing experts, limiting the possibility of groupthink
developing.
250
The participating experts were informed at the start of the
reviewing about the timeframe and expectations.
2.6 Data Analysis
Data analysis is the process for the analysis of qualitative data that
involves three concurrent sub-processes of data reduction, data display, and
drawing and verifying conclusions.
251
Various data analysis process
elements have already been talked about in previous paragraphs. For
example when discussing the iterative research methods design, the
method and data triangulation processes, the software tools used as well as
the approaches applied to increase credibility and validity.
A template analysis approach
252
was used to code interview questions and
answers to represent the themes revealed from the data collected. Answer
categories were developed and attached to units of data in order to explore
themes and patterns. MaxQDA 11, qualitative data analysis software was
used to facilitate the coding and analysis process.
253
The questionnaire results were reviewed and analyzed in IBM SPSS
Statistics 22 with a focus on correlations and verification steps in line with
the data type, while MS Excel 2007 was used for developing the graphical
representations.
249
Shared responsibilities result in no one taking responsibilities.
250
Janis 1982; Janis and Hart 1991; Langfeldt 2002.
251
Saunders, Lewis and Thornhill 2012, pp. 669.
252
King 2012.
253
See footnotes 226 and 226.
Page 70
Facilities and Special Resources Used
The literature review process was supported by the use of RefWorks.
254
All
literature was tagged on content to show relationships between all literature
resources reviewed.
The online Surveymonkey questionnaire development software was used to
develop, administer and analyze to some extent the questionnaire.
The interview data analysis took place by means of MaxQDA 11 qualitative
data analysis computer software. The questionnaire data was reviewed and
analyzed by means of the IBM SPSS Statistics 22 software programme.
2.7 Generalizability of Findings
The limited timeframe in which the research took place affected choices
made with respect to the research design. Due to the partially qualitative
nature of expert panel data and the internet-mediated snowballing approach
chosen for the questionnaire-element, only moderatum generalizations of
primary data results towards the wider supply risk management population
are possible on the basis of inductive reasoning and the identification of
structural homogeneity and particular similar characteristics between the
context in which the research results were obtained and other contexts on
which these findings could be projected.
255
We also have to accept that in the real world the generalization of research
findings is always subject to vulnerability: ...even if the inquiry in a
particular context is meant only to guide decisions about the operation of
that context in a succeeding time frame, time will change both the context
and the individuals who are in it.
256
In that sense it makes more sense to talk about contextual
transferability
257
, where findings can be transferred in cases where there are
similarities between the research and the real world context. The burden of
proof of such contextual transferability lies with the person in the receiving
context wanting to make use of this researchs data and conclusions.
258
254
Refworks is an online research management, writing and collaboration tool. More information can
be accessed on http://www.refworks.com/.
255
Schutz 1982; Williams 2002.
256
Erlandson et al. 1993, pp. 31-32.
257
Halldrsson and Aastrup 2003, p. 327; Saunders, Lewis and Thornhill 2012, p. 194.
258
Guba and Lincoln 1989.
Page 71
CHAPTER 3 DATA FINDINGS
Findings of the expert panel interviews and internet-mediated questionnaire
are presented in the subsequent paragraphs. The data is analyzed and
synthesized, aimed to answer the research questions to which they relate.
3.1 Introduction
The relationship between interview and questionnaire questions and the
research objectives is presented below in Table 7.
Research objective Interview
questions
Questionnaire
questions
RO1. To identify whether supply chains
have been more than marginally impacted
by physical climate change and extreme
weather events over the past three years.
Q.1, Q.2, Q.6 Q.12, Q.13,
Q.14
RO2. To identify the perceived extent of
negative consequences of climate risk
events on the supply chains impacted.
Q.3, Q.5 Q.15, Q.16,
Q.17
RO3. To identify the climate risks, risk
indicators and related risk categories used
in companies Supply Chain Risk
Management Processes (SCRMP).
Q.4, Q.7, Q.8 Q.19, Q.20
RO4. To analyze climate risks by
identifying their consequence severity,
risk likelihood, levels of risk exposure and
thus risk ranking.
- Q.15, Q.16,
Q.19
RO5. To make recommendations on
implementing this information into the
SCRMP.
- Q.18
RO6. To describe how this can inform
management decision-making to improve
supply chain resilience.
- Q.8, Q.9,
Q.10, Q.11
Table 7: Relationship between research objectives and questions
Page 72
3.2 Expert panel interviews
12 Expert panel interviews took place. The expert panel selection and
interview process is discussed in Paragraph 2.3. An overview of expert
panel members can be found in Annex 1. The interview protocol is provided
in Annex 4. The verified interview transcripts are available in Annex 5.
These were coded and analyzed in MaxQDA 11 software.
259
Supply chains and climate risk events
Do you feel supply chains have been more than marginally impacted
by physical climate change and extreme weather events (to be
called: climate risk events) over the past three years? (Question 1)
Figure 21: Interview Q1: Supply chains impacted
When you are talking about individual events you are talking about
extreme weather. When you are talking about longer term trends you
are talking about climate change.
260
I dont want to be lured into the trap of mistaking each extreme
weather event for a climate change event, but I would say that over an
extended period of time climate change has absolutely impact a range
of supply chain issues.
261
259
See footnotes 226 and 226.
260
See Interview 6 Ira Feldman, Question 1, Annex 5.
261
Ibid.
8 4
Yes, climate change
and extreme weather
events
Yes, extreme weather
events
Page 73
The scientific panels are keen on the idea that the climate will change
over time and that climate risk events will occur more frequently, but
were not entirely clear yet in what way it will change. We will need to
take this into account when planning for the long term, but a lot of
supply chains are not planned for the long term and the focus in these
will mainly be on short term extreme weather events.
262
Any climatic event will have an impact on supply chains, particularly in
an era in which we are moving towards leaner supply chains with less
inventory held in different points within the supply chain.
263
I tend to keep a short-term view on this and focus on extreme weather
events, given that the climate change discussion makes no difference to
the need to risk manage the increase in extreme weather events and
their impact on supply chains.
264
Longer term climate change by definition is slow and the changes are
incremental, which makes it difficult to see them from year to year.
265
Can you give a few examples of supply chains being impacted by
climate risk events? (Question 2)
Examples given: Thailand floods (9); Japanese tsunami (4); Hurricane
Sandy (3); Hurricane Katrina (3); Bangladesh floods (2); South Australian
12-year drought (2); Indonesian tsunami; Southeast China typhoons;
Southern Thailand monsoons; Australian floods; Water stress in the
Californian central valley; Drought impacting barge transport on the
Mississippi river; Snowstorms shutting down airports in the Northeast of the
United States; East Congo changes in rainy seasons; Zimbabwe drought.
The types of climate risk events mentioned have informed the answer
possibilities in two survey questions on the past and potential future
occurrence of climate risk events impacting supply chains.
266
What you see is more extreme precipitation patterns, both resulting in
more flooding as well as more droughts.
267
262
See Interview 7 Peter Jones, Question 1, Annex 5.
263
Ibid.
264
See Interview 9 - Colin Airdrie, Question 1, Annex 5.
265
See Interview 10 Michael Keizer, Question 1, Annex 5.
266
See Question 14 and Question 15, Annex 7.
267
See Interview 10 Michael Keizer, Question 2, Annex 5.
Page 74
From a risk management perspective; should climate risks and risk
consequences on supply chains be of growing concern, or not?
(Question 6)
Everyone agreed that climate risks consequences on supply chains should
be of a growing concern. Supporting statements:
It should be part of the risk analysis of any supply chain. Supply chain
risk management is becoming a more significant activity. In the past
that included things like potential price changes, potential for loosing
facilities or suppliers, etc. It makes sense to add climate-based and for
example extreme weather risks to those same type of calculations.
268
There is the chance for customers to migrate either physically or
migrate in the sense of need and preferences with a changing climate. It
is possible that consumer preferences continue to move towards
companies who are actively mitigating climate change.
269
I think that the concern is heightened by recent extreme and more
numerous weather events. That in itself is an indicator towards a
longer-term trend of a changing climate and therefore the corporate
entity not only needs to take it into account in traditional risk
management issues, but also in the corporate culture towards a need
for a culture and individual behaviour change that might be needed as
these trends continue.
270
I think people have up to now worked on the assumption that the
supply chain they set up was relatively robust and they havent taken
into account the climate risk factors.
271
Yes, but only because they have been of no concern, because they
have been neglected.
272
In theory I would say no, because if you have not taken it into account
in your risk management yet then youre very late. The reality is that
there are still organizations who havent, so yet it will probably have to
be of a growing concern.
273
268
See Interview 5 Peter Murray, Question 6, Annex 5.
269
See Interview 1 Taylor Wilkerson, Question 6, Annex 5.
270
See interview 6 Ira Feldman, Question 6, Annex 5.
271
See Interview 7 Peter Jones, Question 6, Annex 5.
272
See Interview 9 - Colin Airdrie, Question 6, Annex 5.
273
See Interview 10 Michael Keizer, Question 6, Annex 5.
Page 75
People realized [climate risk] events could occur, they could be bad,
however no one cares until your bottom line is being impacted.
274
Extent of negative consequences of climate risk events
How would you describe the extent of negative consequences of
climate risk events on supply chains? (Question 3) Any thoughts on
how to quantify climate risk consequences? (Question 5)
Trying to overly quantify a risk, making it too precise, almost would
make it become meaningless. In most cases there are enough
unknowns that you would not have a very high confidence in a very
precise level of measurement.
275
If you take the three basic supply chain criteria, cost, quality and time,
you see that climate risk events immediately affect two of those.
276
From my experience the very lean supply chains with very little to no
alternatives in terms of different suppliers, places of sourcing, and so
forth are typically impacted harsher by climate risk events.
277
It is not necessarily only the number and intensity of risk events
increasing, but also the risk consequence. Leaner supply chains,
urbanization, population growth, a changing social fabric and
environmental degradation all increase the consequences of a risk
event, the effect it will have.
278
The impact of various risk events over the past years shows how
resilience plays a role there as well. When you look at the droughts in
Southern Australia lasting for 12 years the theoretical impact would
have been much more severe than the drought in Zimbabwe last year
that lasted only a couple of months the Australian systems, including
the logistics systems, were much more resilient being built to deal
with it. Even though the seriousness of the climate risk event in
Australia was much larger than the one in Zimbabwe.
279
274
See Interview 11 Steve Leon, Question 6, Annex 5.
275
See Interview 3 Kevin Watson, Question 4, Annex 5.
276
See Interview 7 Peter Jones, Question 3, Annex 5.
277
See Interview 8 Gyngyi Kovcs, Question 3, Annex 5.
278
Ibid., Question 6.
279
See Interview 10 Michael Keizer, Question 3, Annex 5.
Page 76
Proposed indicators for measuring the extent of negative consequences are
shown below in Table 8, together with the frequency of them being
mentioned by the interviewees.
Cost-related 42
Demand, customer-base
related cost
8 Lost profit 5
Cost increases 4 Lost revenue 5
Cost of substitution /
alternatives / Flexibility cost
3 Cost of supplier base issues 3
Value of cargo lost 2 Loss of market share 2
Lost revenue as % of total
yearly revenue
1 Lost revenue in a certain
business segment
1
Redundancy cost 1 Value of damage to facilities
exposed
1
Decline of stock value 1 Increase in insurance
premiums
1
Loss of productive assets 1 Cost of risk adaptation/
mitigation actions
1
Climate change attrition cost 1 Cost of termination of
operations
1
Time-related 14
Lead time, schedule
consequences
4 Time lost during event 4
Time element of operations
termination
2 Time to recover 2
% of not on time delivery 1 Delay in product
introductions
1
Cost and time related 11
No service provision all
together / Cost & time of
down time / Lost production
5 Delay of deliveries 2
Lack of materials 1 Decreased accessibility 1
Exacerbation of natural
resource shortages
1 Increase in supply-demand
mismatches
1
Table continued on the following page.
Page 77
Other (including social indicators) 11
Trust, reputational
consequences
2 Loss of life 2
Social impact 1 Effects on inventory turnover 1
Increased vulnerability 1
Employee safety 1 Labor standards 1
Metrics on response
effectiveness
1 Metrics on responsiveness of
event governance systems
1
Table 8: Indicators for climate risk consequences
These indicators have been used as answer possibilities in the survey.
280
Climate risks, risk indicators and risk categories
The risk consequence as used in a risk matrix has a scale from
'negligible' - 'minor'- 'moderate' to 'severe' and finally 'critical'.
Does the use of such a scale allow for objective results and
comparison between risk events? (Question 4)
Figure 22: Objective use of risk matrices
Within a company risk matrices allow for comparison and facilitate
prioritization decisions on which risks to address first.
281
280
See Question 17, Annex 7.
281
See Interview 1 Taylor Wilkerson, Question 4, Annex 5.
3
3
6
Yes
Yes, with some
constraints
No
Page 78
When you start looking across companies you have to consider that
there is a relative scale there in what is considered critical or
catastrophic by each company or industry.
282
Id be interested to find out how many companies are actually using
such a scale?!
283
The crux of the problem of risk analysis of climate change is the non-
linearity. It should identify where the company should not go first and
foremost, as well as what they may be able to ask of their suppliers as
minimal safeguards.
284
There would be little value in after the fact comparison, because it is
questionable how predictive you can be on climate change with a risk
matrix. Apart from everyone agreeing that it was bad, trying to take
that data and feed it into a predictive model would be very helpful.
285
Yes, risk consequence scales might help on a conceptual level for
discussions. But whether they really help in practical risk management
is an open question. A lot will depend on the assessors of the risk
matrices and on the level of acceptance of the findings by the audiences
for such risk matrices.
286
Of course over a large sample you would get some sort of consensus
with a scale like that. The problem would perhaps be bigger if
comparing various types of risks, but even objectively comparing one
type of risk between locations can be difficult with such scales.
287
Any kind of scale like that is a perception scale and risk perceptions
have a lot to do with cultural differences, the history of the respondent
and his exposure to particular risks over time, which could result in
complacency.
288
First of all, there are no generally accepted scales of risk
consequences. And secondly, it is probably even more subjective than
the likelihood of risk events occurring.
289
282
Ibid.
283
See Interview 2 Steven Dunn, Question 4, Annex 5.
284
See Interview 4 Nancy Gillis, Question 4, Annex 5.
285
Ibid.
286
See Interview 10 Michael Keizer, Question 4, Annex 5.
287
See Interview 8 Gyngyi Kovcs, Question 4, Annex 5.
288
Ibid.
289
See Interview 10 Michael Keizer, Question 4, Annex 5.
Page 79
Could you come up with climate risk indicators to be used in
companies Supply Chain Risk Management Processes (SCRMP)?
(Question 7)
It is Niels Bohr
290
who said: Prediction is very difficult, especially if it's
about the future.
291
There is no need to waste time and effort to monitoring a basket full of
metrics if a lot of them dont really measure any impacts in the context
of a specific supply chain.
292
We might need to look outside of our field to get the information we
would need for climate risk prediction.
293
Climate change and environmental sustainability pose place-based
risks, i.e. exact geographic locale is of importance
294
You have to look at the micro-climate level to get a useful level of
accuracy.
295
There are so many possible indicators and it totally depends on the
context of the company. The indicators for Philips would be very
different from indicators for Amazon to take two organizations. Even
within one sector there can be differences, depending on where your
facilities are located both geographically as well as from the
upstream-downstream supply chain level perspective.
296
I dont think longer term climate change indicators are relevant to
companies, at least not from a supply chain perspective. The translation
of short term weather information into decisions is what companies
probably should invest in.
297
Indicators discussed are shown in Table 9 on the following page, together
with the frequency of these being mentioned by the interviewees. These
indicators have been used as answer possibilities in the survey.
298
290
Niels Bohr (7 October 1885 18 November 1962) was a Danish physicist, scientific researcher and
philosopher who made foundational contributions to understanding atomic structure and quantum
theory. In 1922 he received the Nobel Prize in Physics.
291
See Interview 10 Michael Keizer, Question 4, Annex 5.
292
See Interview 3 Kevin Watson, Question 7, Annex 5.
293
See Interview 11 Steve Leon, Question 7, Annex 5.
294
See Interview 4 Nancy Gillis, Question 7, Annex 5.
295
See Interview 9 - Colin Airdrie, Question 7, Annex 5.
296
See Interview 10 Michael Keizer, Question 7, Annex 5.
297
See Interview 12 Sander de Leeuw, Question 7, Annex 5.
298
See Question 20, Annex 7.
Page 80
Temperature related 6
Changes in temperature 4 Temperature forecasts 1
Long term temperature
differential
1
Precipitation/water related 13
Changes in precipitation level 3 Changes in precipitation
intensity
2
Rising sea levels 2 Changes in water/drought
conditions
2
Occurrences of extreme
precipitation
1 Increased water scarcity 1
Floodplain risk rating 1 Precipitation forecasts 1
Other 15
General increase in volatility
of extreme weather events
4 Weather indexing / Extreme
weather trending
3
Changes in occurrence of
extreme winds,
typhoons/hurricanes
2 Changes in wind patterns 2
Climate insurance cost on
capital assets
1 Food price index 1
Geologic maps 1 The price of oil 1
Table 9: Climate risk indicators
Could you come up with risk categories in which climate risk
indicators are, or should be, taken into account? Or do you feel that
climate risk indicators should have their own, or no specific risk
category? (Question 8)
Interviewees responses on this question were most diverse, ranging from
those who felt climate risk indicators needed their own category, those who
felt they needed their own categories under certain circumstances and those
who felt they should be integrated in existing categories or do not need any
category existing or new.
Page 81
Figure 23: Specific, existing or no risk category
It adds more weight if they have their own category. If you add them
to other categories it submerges them and you cant see the rogue
factor in the category.
299
The value added of having risk categories goes to the monitoring and
mitigation of the risks. So being able to separate severe weather from
supply or financial viability provides you to understand the different
nature of those events. Severe weather you have no control over; its
going to happen, probably you only have a few days warning, whereas
financial viability there are ways of tracking, working with suppliers and
you will probably have several months of warning and there is very
different mitigation activities.
300
I think it is a two-sided question. Is it better if you give it a title and
you give it visibility as a category in its own right? This can go two
ways: They make it a title, they add a Chief Climate Change Officer.
That must be important, or it goes like: Well, someone is covering it,
so I dont need to look at it or think about it. The Chief Regulations
became Chief Sustainability and would then become Chief Climate
Change.
301
299
See Interview 9 - Colin Airdrie, Question 8, Annex 5.
300
See Interview 1 Taylor Wilkerson, Question 8, Annex 5.
301
See Interview 2 Steven Dunn, Question 8, Annex 5.
2
3
6
1
Specific category
Specific category
sometimes
In existing category
No category
Page 82
You need to create urgency, make it visible, give it a title, and you get
the right people on the bus before it becomes part of mainstream
decision-making.
302
Singling out any kind of category might lead to oversight.
303
If its a separate category that no one understands and no one will
actually react on it. In the case of sustainability you see a Chief
Sustainability Officer and no one really understands what the person is
doing, while sustainability should become an integral part of the
organization.
304
It usually makes more sense to integrate them into existing categories,
into each one of them where they have an impact, because they then
become an integral part of risk management in a supply chain.
305
A choice for certain risk categories should be informed by and
concerned with whatever impacts the company. If what they are most
concerned about is schedule, then your climate risks should end up in a
category that is schedule-related. If it is weather impacting cost of
materials, then use your climate risk indicators in a related category.
306
Climate risk indicators should be associated with particular parts of the
supply chain, break it down to processes at different levels. You can
disaggregate and re-aggregate information up and down the chain and
levels, horizontally as well as vertically.
307
Climate risks probably impact almost any category of risks you would
come up with, which is why they definitely should not have their own
category.
308
Ill use the analogy of a menu in a Chinese restaurant; as you look up
and down the menu, in the margins next to 15 to 20 % of the available
menu options you will see a marking like a little red hot chili pepper
those are the very spicy dishes, beware! It would be useful to indicate
which metrics or indicators are climate change sensitive. This would
302
Ibid.
303
See Interview 8 Gyngyi Kovcs, Question 8, Annex 5.
304
Ibid.
305
Ibid.
306
See Interview 3 Kevin Watson, Question 7, Annex 5.
307
See Interview 5 Peter Murray, Question 8, Annex 5.
308
See Interview 10 Michael Keizer, Question 8, Annex 5.
Page 83
then imply: Be careful in using these metrics, because you may no
longer be able to rely on historical data!
309
I think having separate climate change risk indicators in one category
that is kind of to the side, makes it less impactful. For example, if you
look at the energy intensity of a supply chain including your suppliers
you can aggregate that down to a unit of output, and that is becoming
a pretty effective measure tool. If you would separate that measure out
as a stand-alone then it would become less effective in doing something
about it and it would be less effective in monitoring changes in
processes and nodes over time.
310
The question on risk categories has not been further examined in the
subsequent internet-mediated questionnaire.
The use and value added of specific categories vis--vis integration into
existing categories depends on too many factors and one or two closed
answer options do not do justice to the complexity. The use of specific
climate risk categories depends for example on the level of urgency given to
climate risks informed by a supply chain-wide risk analysis, on organization-
specific choices made within the organizations SCRMP, and the level of
integration of SCRM within the wider organizational risk management
system.
Further points of discussion
I would say that the organizations who have not taken climate risk
consequences into account in their risk management yet are pretty late
and probably too late.
311
Maybe a companys ERP system can be the climate change risk
management vehicle, given it has that interconnectedness, we invested
heavily in it already, it would legitimize climate risk management
decision-making and perhaps we should model climate change into a
companys ERP system.
312
309
See interview 6 Ira Feldman, Question 8, Annex 5.
310
See Interview 5 Peter Murray, Question 6, Annex 5.
311
See Interview 10 Michael Keizer, Question 6, Annex 5.
312
See Interview 2 Steven Dunn, Question 8, Annex 5.
Page 84
3.3 Internet-mediated questionnaire
The design of the internet-mediated questionnaire was informed by the
results of the expert interviews as discussed in Paragraph 3.2 and the
research objectives. The questionnaire data was reviewed and analyzed in
IBM SPSS Statistics 22 software.
313
This paragraph starts with painting a picture of the 393 questionnaire
respondents, personally professionally as well as the type of organization
for which and sector in which they are working. This informs and grounds
their answers given on those questions that link directly to the research
objectives, as shown in Table 7.
Skip logic has been used in this questionnaire (see Annex 7). As such not all
questions have been answered by all respondents. n will indicate the total
number of respondents per question.
Questionnaire respondents profile
Gender (Question 21, n=393)
Figure 24: Questionnaire respondents' gender
There is a very positive gender balance in the responses. Given supply and
logistics is still a male-dominated field of work, getting 26.2% of the
responses from female professionals reflects the growing role of women in
supply chain management and logistics. Focusing specifically on the
313
See footnotes 244 and 244.
Female: 103
(26.2 %)
Male: 290
(73.8 %)
Page 84
3.3 Internet-mediated questionnaire
The design of the internet-mediated questionnaire was informed by the
results of the expert interviews as discussed in Paragraph 3.2 and the
research objectives. The questionnaire data was reviewed and analyzed in
IBM SPSS Statistics 22 software.
313
This paragraph starts with painting a picture of the 393 questionnaire
respondents, personally professionally as well as the type of organization
for which and sector in which they are working. This informs and grounds
their answers given on those questions that link directly to the research
objectives, as shown in Table 7.
Skip logic has been used in this questionnaire (see Annex 7). As such not all
questions have been answered by all respondents. n will indicate the total
number of respondents per question.
Questionnaire respondents profile
Gender (Question 21, n=393)
Figure 24: Questionnaire respondents' gender
There is a very positive gender balance in the responses. Given supply and
logistics is still a male-dominated field of work, getting 26.2% of the
responses from female professionals reflects the growing role of women in
supply chain management and logistics. Focusing specifically on the
313
See footnotes 244 and 244.
Female: 103
(26.2 %)
Male: 290
(73.8 %)
Page 84
3.3 Internet-mediated questionnaire
The design of the internet-mediated questionnaire was informed by the
results of the expert interviews as discussed in Paragraph 3.2 and the
research objectives. The questionnaire data was reviewed and analyzed in
IBM SPSS Statistics 22 software.
313
This paragraph starts with painting a picture of the 393 questionnaire
respondents, personally professionally as well as the type of organization
for which and sector in which they are working. This informs and grounds
their answers given on those questions that link directly to the research
objectives, as shown in Table 7.
Skip logic has been used in this questionnaire (see Annex 7). As such not all
questions have been answered by all respondents. n will indicate the total
number of respondents per question.
Questionnaire respondents profile
Gender (Question 21, n=393)
Figure 24: Questionnaire respondents' gender
There is a very positive gender balance in the responses. Given supply and
logistics is still a male-dominated field of work, getting 26.2% of the
responses from female professionals reflects the growing role of women in
supply chain management and logistics. Focusing specifically on the
313
See footnotes 244 and 244.
Female: 103
(26.2 %)
Male: 290
(73.8 %)
Page 85
manufacturing and transport and storage sub-sectors, 25.6% of the
responses were from female professionals.
The respondents field of work was the focus of Question 22, visualized in
Figure 25. With the survey aimed at logistics, supply chain and risk
management specialists, a balanced spread can be distinguished in the
respondents field of work. 39% of the respondents represent logistics,
supply, procurement and sourcing functions, 24% representing risk
management, quality, CSR and sustainability and 25% of the respondents
have a consulting, advisory role towards these functions.
Field of work (Question 22, n=393)
Figure 25: Questionnaire respondents' field of work
Figure 26 on the next page focuses on the main sector in which the
respondents organization operates. It shows a very balanced spread; 38%
of the respondents work for private companies, 25% for public
organizations either (sub)national or multilateral and inter-governmental,
and 24% represent organizations operating in the voluntary, non-profit,
non-governmental sector. 13% of the respondents come from the
academic, research sector.
26%
13%
8%
8%
8%
3%
9%
25%
Supply chain, logistics operations
/ management
Procurement, sourcing or
contract management
Organizational risk management
/ Risk management
Quality assurance / Quality
management
Corporate Social Responsibility /
Sustainability
Financial management / Financial
decision-making
Academic focus on any of the
above fields
Consultant / advisory function to
any of the above fields
Page 86
Sector in which the respondents organization operates
(Question 1, n=393)
Figure 26: Sector in which the respondents' organization operates
Specific sector on which the respondents organization focuses
314
(Question 2, n=393)
Figure 27: Specific sector on which the respondents organization focuses
314
The letters are part of the ISIC Rev 4 codes, which are the International Standard Industrial
Classification of All Economic Activities, as issued by the United Nations Department of Economic
and Social Affairs (UNDESA) - Statistics Division. UNDESA 2008.
38%
13%
12%
24%
13%
Private
Public (national and sub-national)
Public (multilateral, inter-
governmental, eg. EU, UN)
Voluntary, Non-profit, Non-
governmental
Academic, Research
8.9%
12.7%
14.8%
9.4%
2.8%
12.5%
2.3%
12.0%
2.3%
2.3%
9.9%
8.9%
Z - Aggregration of sectors with <
S - Other service activities
Q - Human health and social work
P - Education
O - Public administration and defense
M - Professional, scientific and
J - Information and communication
H - Transportation and storage
F - Construction
E - Water supply + sewerage, waste
C - Manufacturing
A - Agriculture, forestry and fishing
Page 87
Question 2 focused on the sub-sector in which the respondents organization
operates. Voluntary, non-profit and non-governmentals are mainly
represented in ISIC codes Q and S, though other service activities also
includes private and public service activities. The academia is represented in
ISIC code P and academic research is also represented in ISIC code M,
though code M also represents R&D in the private sector.
Size of the respondents organization (Question 3, n=393)
315
When focusing on risk management in global supply chains a large number
of businesses probably represent the small and medium-sized business
bracket, though companies in the large and enterprise-size scales do make
up for a substantial part of employment. As such, employees in large and
enterprise-level companies do represent a considerable number of the total
population of those being involved in global supply chains and related risk
management, visualized in Figure 28 below.
Figure 28: Size of the respondents' organization
315
The EC SME standard sets the European standard for business sizes. See EC 2005. The three
official business size standards available are the United States, European Union and the Australian
standards on business sizes, for which the European standard was chosen because it formed a
happy medium between the Australian (smaller) and American (bigger) business size standards.
13.2%
12.5%
16.5%
15.5%
42.2%
Micro
(1-9
employees)
Small
(10-49
employees)
Medium
(50- 249
employees)
Large
(250-999)
Enterprise
(1000 or more)
Page 88
Respondents years of experience in the sector currently employed
in vs. experience in their specific field of work (Question 23, n=393)
The respondents experience in the sector focuses on questionnaire
Question 2 (Figure 27) whereas the respondents experience in their field of
work focuses on Question 22 (Figure 25).
Figure 29: Respondents' years of experience in the sector of employtment
Figure 30: Respondents' years of experience in their field of work
0
20
40
60
80
100
# respondents
# years experience
in the sector
mean = 14.08 years
0
20
40
60
80
100
120
# years experience
in field of work
# respondents
mean = 13.1 years
Page 89
There is a strong positive correlation between the respondents years of
experience in the sector currently employed in versus their experience in
their specific field of work; Pearsons r = 0.551.
316
This means that when
talking about experience we dont necessarily need to distinguish between
whether this is sectoral or field of work experience.
Respondents level of responsibility (Question 24, n=393)
Given the respondents years of experience the expectation is that a
considerable number of respondents will work in higher-level positions,
which turns out to be true. 26% works at director-level, 22.4% at senior
management level and 27.2% at middle management level. This is
represented in Figure 31 below.
Figure 31: Respondents' level of responsibility
However, there is a moderately negative correlation between the level of
responsibility and years of experience in the sector (Pearsons r = -0.384)
as well as between the level of responsibility and the years of experience in
the respondents field of work (Pearsons r = -0.378).
317
316
Calculated in SPSS 22. Two-tailed Pearsons r.
317
Ibid.
26.0%
22.4%
27.2%
7.9%
16.5%
Director-level Senior
manager
below director
level
Middle
manager
Line manager Employee with
limited to no
managerial
responsibility
Page 90
A plausible, though not verifiable, explanation would be that those aspiring
higher positions move up the ladder through various sectors and job
functions, resulting in a lower number of years of experience in one specific
sector or field of work. People who do not aspire to climb up to higher
management levels are happy within their sector and field of expertise and
build up experience within that one sector or field of expertise.
Respondents country of employment, country of origin and location
of the respondents organizations head office (Questions 25, 26 and
4, n=393)
These questions were asked on country-level but aggregated to regional
level for the graphical representations on the following pages. The
correlations between the answers on the three questions were calculated on
country-level.
A question could be whether the respondents answers are influenced by
and reflect their personal origin, their current work environment or perhaps
the business culture of the organizations original location. A strong positive
correlation between the three could render that question less important.
Figure 32: Respondents' region of employment
Region of employment
Asia / Australasia 29%
Europe 33%
Northern
America 22%
Southern
America 4%
Africa 12%
Page 91
Figure 33: Respondents' region of origin
Figure 34: Location of respondents' organization's head office
The correlation between the respondents country of origin and employment
was very strongly positive (Pearsons r = 0.725). The correlation between
the country of origin and the country of the organizations head office
(Pearsons r = 0.63) was strongly positive. The correlation between the
country of employment and the country of the organizations head office
(Pearsons r = 0.811) was also very strongly positive.
318
318
Ibid.
Region of origin
Asia / Australasia 27%
Europe 39%
Northern
America 21%
Southern
America 4%
Africa 9%
Location of head office
Asia / Australasia 23%
Europe 42%
Northern
America 25%
Southern
America 3%
Africa 7%
Page 92
Risk management and supply chains - verifiers
Three questions were asked to verify whether respondents organizations
applied a risk management system (Question 5), adhered to a risk
management standard (Question 6) and actually operated supply chains
(Question 7).
Some of the next questions only applied to those who do have a supply
chain risk management system in place and/or are actively involved in
supply chain operations.
Does your organization apply a risk management system?
(Question 5, n=393)
Answer Options Response % Response #
Yes 62.3% 245
No 23.7% 93
I don't know 14.0% 55
Table 10: Application of a risk management system
Does your organization adhere to an accredited
risk management standard? (Question 6, n=393)
Answer Options Response % Response #
Yes 23.7% 93
No 46.1% 181
I don't know 30.3% 119
Table 11: Adherence to a risk management standard
Page 93
Does your organization apply a supply chain risk management
system? (Question 7, n=393)
Answer Options
Response
%
Response
#
Yes - My organization has a supply chain risks
management system as an integral part of its
enterprise risk management system.
20.9% 82
Yes - My organization has a supply chain risk
management system separate from its
enterprise risk management
10.4% 41
The respondents above total 123 respondents and they answered
specific risk management questions (skip logic was applied)
No - My organization is involved in supply chain
activities, but has no supply chain specific risk
management system
29.0% 114
The respondents above total 237 respondents and they answered
specific climate risks and supply chain questions (skip logic was applied)
No - My organization does not operate or is not
involved in any supply chain activities
22.4% 88
I don't know 17.3% 68
Table 12: Application of a supply chain risk management system
Discarding the final two groupings, 123 respondents - being 51.9% - of
those operating supply chains, i.e. 237 respondents, do have a supply chain
risk management system in place.
Supply chains and climate risk events
Research Objective 1. To identify whether supply chains have been more
than marginally impacted by physical climate change and extreme
weather events over the past three years.
Page 94
Supply chains in general have been more than marginally impacted
by physical climate change and extreme weather events over the
past three years (Question 12, n=237)
Figure 35: Likert scale on supply chains in general having been more than
marginally impacted by climate risk events over the past 3 years
Respondents are clear that supply chains in general have been more than
marginally impacted by physical climate change and extreme weather
events over the past 3 years with 71% agreeing or strongly agreeing, and
only 16% disagreeing or strongly disagreeing with the statement.
319
Figure 36: Has your organization's supply chain been more than marginally
impacted by a climate risk event over the past 3 years?
319
Please note that the aim of this research is not to conclude whether short term extreme weather
events can be explained by long term climate change! Both physical climate change as well as
extreme weather events are regarded as climate risk events, without aiming to derive any
conclusions regarding the causal relationship between extreme weather events and climate change.
3% 13% 14% 50% 21%
39.7%
44.3%
16.0%
Yes
No
I don't know
Page 95
39.7% - 94 respondents - indicated that their own supply chain has been
impacted by climate risk events over the past 3 years (Question 13,
n=237), visualized in Figure 36 on the previous page.
Of those whose own supply chain has been impacted, 93.6% agrees to
strongly agrees that supply chains in general have been more than
marginally impacted by climate risk events over the past three years.
Question 14 (n=94) subsequently asked those respondents whose supply
chain had been impacted about the type of climate risk event that impacted
their supply chain, visualized in Figure 37 below.
Figure 37: Climate risk events that more than marginally impacted supply chains
The climate risk event that most impacted their supply chain was flooding
(31.9%), followed by hurricane / cyclone / typhoon (28.7%), drought
(11.7%) and extreme precipitation / monsoon (8.5%).
The climate risks least impacting their supply chains were global sea level
rise (0%), global temperature increase (2.1%) and the occurrence of
tsunamis (2.1%). It becomes clear that over the past three years it were
0.0%
2.1%
2.1%
3.2%
4.3%
7.4%
8.5%
11.7%
28.7%
31.9%
Global sea-level rise
Tsunami
Global temperature increase
Heat wave
Cold wave
Blizzard / Snowstorm
Extreme precipitation /
Monsoon
Drought
Hurricane / Cyclone / Typhoon
Flooding
Page 96
not climate change related climate risks or tsunamis, but extreme weather
related climate risks that impacted supply chains.
It should be noted that the type of climate risk impacting supply chains is
influenced by the specific climatic and geographical circumstances of those
locations in which the organization operates its supply chains, which means
that this information cannot be easily generalized towards global supply
chains. Respondents filled out the questionnaire looking at the supply chain
element on which they focus. Local circumstances at the disaggregation
level of supply chain nodes and linkages, processes and streams need to be
analyzed to come to conclusions about the entire chain and its vulnerability
to specific climate risks.
Extent of negative consequences
Research Objective 2. To identify the perceived extent of negative
consequences of climate risk events on the supply chains impacted.
Question 15 asked those respondents whose supply chain had been
impacted (n=94) about how they would rate the impact of the climate risk
event, visualized in Figure 38.
Figure 38: Perceived impact of the climate risk event
Subsequently in Question 16 (n=94) the same respondents were asked how
they would rate the impact in the light of their companys risk appetite,
displayed in Figure 39 on the following page.
1%12% 40% 35% 12%
Page 97
Figure 39: Impact of the climate risk event related to the company's risk appetite
While 47% rates the impact of the climate risk event impacting their supply
chain as either severe or critical, in the light of their companys risk
appetite only 23.4% describes the climate risk event as being unacceptable.
Question 15 provided the option to explain why respondents would rate the
perceived impact of climate risk events the way they did. Those rating the
impact as severe or critical talk about floods inundating nodes, events
impacting production for 2 months, goods being stuck for prolonged periods
of time, severe physical impediments, damaged infrastructure, interruption
of raw material supplies and total recovery after a climate risk event taking
at times up to a year.
But the same respondents also comment that as we have operations in
many countries, the overall impact has been manageable and despite the
impact being grave, these were insured / insurable losses.
Question 17 (n=94), visualized in Figure 40 on the following page, asked
respondents to select up to 4 indicators best measuring the impact of the
climate risk event. The indicators selected present a mix of time and cost-
related indicators, with those chosen most being time-related. This differs
from the expert panel interview results (See Table 8), where cost-related
indicators were favoured.
18.1%
58.5%
23.4%
Acceptable
Tolerable
Unacceptable
Page 98
Indicators on the impact of climate risk events (Question 17, n=94)
Figure 40: Preferred climate risk impact indicators
5.3%
6.4%
6.4%
10.6%
11.7%
12.8%
13.8%
14.9%
16.0%
18.1%
18.1%
22.3%
27.7%
28.7%
30.9%
34.0%
38.3%
44.7%
COST: Loss of market share / decline
in stock value
OTHER: No service provision all
together
OTHER: Exacerbation of natural
resource shortages
COST: Value of production / cargo
lost
COST: Increase in insurance
premiums
OTHER: Loss of life
OTHER: Employee safety
COST: Lost revenue as % of total
revenue
COST: Cost of supplier base issues
OTHER: Trust, reputational and
social consequences
OTHER: Efficiency of response /
responsiveness
COST: Demand / customer-base
related cost
TIME: Time to recover
COST: Cost of substitution or
alternatives / Flexibility cost
COST: Value of damage to facilities /
assets
COST: Lost profit or lost revenue
TIME: Product lead time / schedule
consequences / delivery delay
TIME: Time lost during climate risk
event
= TIME
= COST
= OTHER
Page 99
Climate risks and risk indicators
Research Objective 3. To identify the climate risks, risk indicators and
related risk categories used in companies Supply Chain Risk Management
Processes (SCRMP).
Figure 37 (Question 14) already presented the climate risk events that most
impacted respondents supply chain over the past three years, being
flooding (31.9%), followed by hurricane / cyclone / typhoon (28.7%),
drought (11.7%), extreme precipitation / monsoon (8.5%) and blizzard /
snowstorm (7.4%). Climate change related risk events and tsunamis were
indicated as climate risk events least impacting their supply chains.
While Question 14 focused on past events, Question 19 (n=237) asked
What, in your view, is the likelihood of your organizations supply chain
getting more than marginally impacted by the following climate risk events
over the coming three years?, visualized in Figure 41 on the next page.
On average the likelihood of respondents organizations supply chain being
impacted by climate risk events is indicated to be as likely as unlikely over
the coming three years, corresponding with a likelihood scale between 33
and 66%.
320
This result is very much in line with the historical picture
painted in Question 12, with 71% agreeing or strongly agreeing that supply
chains in general have been more than marginally impacted by climate risk
events over the past 3 years, and with the response on Question 13 with
39.7% indicating that their own supply chain has been impacted by climate
risk events over the past 3 years.
Zooming in on specific climate risk events; Flooding is seen as the most
likely event, with 48% identifying it as likely to virtually certain their
supply chain will be impacted by flooding in the next three years. Extreme
precipitation is the second-most likely event (38%) and hurricanes /
typhoons / cyclones being the third-most likely event (35%).
321
320
The question made use of a 7-point likelihood ordinal answer scale, based on the likelihood
standards as used in IPPC 2007a and 2007b. Given the answer options ranging from exceptionally
unlikely (1) to exceptionally likely (7) and the answer median being 3.31, the only conclusion can
be that 3.31 falls within the middle category as likely as not likely. A conclusion that the likelihood
of being impacted by a climate risk event is rated at 3.31/7 = 47.6% would be premature.
321
The categories likely to virtually certain represent a likelihood between 66% and 100%
Page 100
Figure 41: Perceived likelihood of future climate risk events impacting respondents' supply
chains over the coming three years
38%
29%
22%
30%
19%
21%
24%
21%
16%
8%
15%
19%
19%
14%
18%
15%
12%
14%
18%
12%
20%
16%
22%
15%
23%
18%
13%
16%
15%
15%
12%
11%
16%
16%
13%
16%
16%
15%
14%
16%
8%
16%
15%
11%
17%
15%
20%
18%
18%
22%
5%
6%
5%
10%
8%
11%
10%
11%
13%
18%
3%
3%
3%
5%
2%
5%
5%
6%
7%
8%
Exceptionally
unlikely (<1%)
Very unlikely
(<10%)
Unlikely
(<33%)
About as likely
as unlikely
(33-66%)
Likely
(>66%)
Very likely
(>90%)
Virtually
certain
(>99%)
Flooding
Hurricane / Cyclone
/ Typhoon
Extreme precipitation
/ Monsoon
Global temperature
increase
Heat wave
Drought
Global sea-
level rise
Cold wave
Tsunami
Blizzard /
Snowstorm
Page 101
The climate risk events indicated to be unlikely to exceptionally unlikely
are tsunamis (73%), blizzards / snowstorms (64%) and cold waves
(63%).
322
Interestingly enough the climate change-related risk events of global
temperature increase and global sea level rise are not seen as the most
unlikely events. This is rather curious, given that climate change risk events
have a longer term impact and the question referred to the likelihood of
climate risk events maturing and impacting supply chains over the coming
three years. It might be, though this is speculation, that respondents see
these climate change events as instigators of certain extreme weather
events, viz. global temperature increase as an instigator of droughts and
global sea level rise as an instigator of flooding in coastal areas.
In Paragraph 1.7 on indicators it was already indicated that climate risks
need to be operationalized by examining past climate risk sources and
events, current trends and future climate risk projections in the light of
supply chain vulnerabilities.
The aim of this research study was not to develop climate risk indicators,
but to identify climate risk indicators and related risk categories to be used
in companies Supply Chain Risk Management Process (SCRMP). It should
be noted that apart from climate risk sources, risk sources on all operational
levels having the potential to ameliorate climate risk consequences.
Question 20 (n=237) asked respondents which indicators they would
monitor in order to predict the development of climate risk events possibly
impacting your organization's supply chain. Up to 3 indicators could be
chosen. Respondents choose a mix of past, present and future, leading and
lagging indicators. Changes in wind patterns as indicator was perceived
least useful (5.6%) for climate risk prediction. Respondents are also not
that interested in rising sea levels (13.3%), but the longer term
temperature changes indicator, a climate change focused indicator, is more
often added to their set of risk indicators (24%).
322
The categories unlikely to exceptionally unlikely represent a likelihood between 33% and 0%.
Page 102
Indicators on climate risk prediction (Question 20, n=237)
Figure 42: Preferred climate risk prediction indicators
Climate risk analysis
Research Objective 4. To analyze climate risks by identifying their
consequence severity, risk likelihood, levels of risk exposure and thus risk
ranking.
5.6%
13.3%
14.2%
17.2%
19.3%
20.2%
20.6%
23.2%
24.0%
27.0%
32.2%
39.5%
Changes in wind patterns
Rising sea levels
Climate insurance cost on capital
assets
Changes in precipitation level
Increased water scarcity
Changes in precipitation intensity
Floodplain risk rating
Short term temperature changes /
forecasts
Long term temperature changes
Changes in water/drought
conditions
Weather indexing / Extreme
weather trending
Occurrences of extreme weather
events
Page 103
Going back to Question 15 and looking at those climate risk events that
most impacted supply chains in the past three years, visible in Figure 43,
the impact rating for floods (median=3.42) and hurricanes / cyclones /
typhoons (median= 3.52) is closely following the picture presented earlier
for the total value of climate risk events having impacted supply chains over
the past three years (median=3.44). Droughts are seen as more critical
with a median of 3.73, but the low number of respondents experiencing this
climate risk event might influence the accuracy of this result.
323
There is a moderate positive correlation (Pearsons r = 0.334) between the
perceived impact of climate risk events (Question 15) and the perceived
impact in the light of the organizations risk appetite (Question 16), i.e.
more severe impacts are generally less acceptable.
324
Figure 43: Perceived impact of the top 3 climate risk events
Making a split-up for the organizations risk appetite (Question 16) for
flooding and hurricanes / cyclones / typhoons, visualized on the next page
in Figure 44, those groupings of risk events are seen equally unacceptable
as the total for climate risk events. However, when looking at what is seen
as acceptable, there is more of a risk appetite for hurricanes.
323
The impact was rated on a scale from negligible (1) to critical (5).
324
Calculated in SPSS 22. Two-tailed Pearsons r.
4%
1%
11%
16%
12%
36%
41%
32%
40%
55%
19%
45%
35%
9%
26%
6%
12%
Climate risks
total (n=94)
Floods
(n=31)
Hurricanes
/... (n=27)
Drought
(n=11)
Page 104
Figure 44: Impact of climate risk events related to the company's risk appetite
Question 19 looked at the perceived likelihood of various climate risk events
impacting respondents supply chains over the coming three years. When
looking at the answers of those respondents who have already been
impacted by a specific climate risk event in the past it becomes clear that
these respondents are much more critical about a similar event happening
in the future.
Those who have been impacted by flooding in the past rate the likelihood of
floods occurring in the future considerably higher, visible in Figure 45. The
same picture - though even more pronounced - is visible in Figure 46; those
who have been impacted by hurricanes, cyclones or typhoons in the past
perceive the likelihood of it happening again in the future considerably
higher than those respondents who have not been impacted by such an
event in the past.
18.1
%
58.5
%
23.4
%
Climate risk events total
6.5%
67.7
%
25.8
%
Flooding
22.2%
51.9%
25.9%
Acceptable
Tolerable
Unacceptable
Hurricane / Cyclone / Typhoon
Page 105
Figure 45: Differences in flooding likelihood perception
Figure 46: Differences in hurricane / cyclone / typhoon likelihood perception
It was already concluded that those who have personally experienced a
certain risk event in the past tend to be more realistic in their risk
perception.
325
The conclusion is that the perceived likelihood of future
climate risk events in Figure 41 is under-estimated and the actual likelihood
of such events occurring will probably be higher as in Figures 45 and 46.
325
See footnote 179.
8.4%11.8%
6.5%
15.2%
6.5%
15.6%
16.1%
22.4%
22.6%
18.1%
32.3%
8.4%
16.1%
Very unlikely
(<10%)
Unlikely
(<33%)
About as likely
as unlikely
(33-66%)
Likely
(>66%)
Very likely
(>90%)
Virtually certain
(>99%)
Likelihood of flooding (n=237, median=4.2 on a 1-7 scale)
Likelihood of flooding, rated by those who have been
flooded in the past (n=31, median=5.2 on a 1-7 scale)
Exceptionally
unlikely (<1%)
20.7%
7.4%
13.5%
3.7%
16.0%
3.7%
14.8%
22.2%
18.1%
7.4%
10.5%
18.5%
6.3%
37.0%
Very unlikely
(<10%)
Unlikely
(<33%)
About as likely
as unlikely
(33-66%)
Likely
(>66%)
Very likely
(>90%)
Virtually certain
(>99%)
Likelihood of hurricanes / cyclones / typhoons
(n=237, median=3.5 on a 1-7 scale)
Likelihood of hurricanes, rated by those who have been hit
by one in the past (n=27, median=5.2 on a 1-7 scale)
Exceptionally
unlikely (<1%)
Page 106
Climate risk management
Research Objective 5. To make recommendations on implementing this
information into the SCRMP.
Recommendations will be made in Chapter 5, but it is good to analyze the
type of risk treatment actions pursued by those impacted in the past by
climate risk events.
Question 18 (n=94) dealt with the type of risk treatment to tackle the
impact of a past climate risk event and the respondent could choose 2 risk
treatment options. Contingency planning is not surprisingly the first risk
treatment option chosen (54.3%). Crisis management is the second
treatment option (26.6%), followed by risk pooling (22.3%), risk adaptation
(22.3%) and risk mitigation (19.2%).
Figure 47: Types of risk treatment options used
4.3%
6.4%
7.4%
19.1%
22.3%
22.3%
26.6%
54.3%
Operational risk avoidance -
Cancelling activities or outsourcing
to not have to deal with it
Do nothing - no actions were put
in place
Financial risk transfer hedging /
mitigation - Any type of risk
insurance or financial action
Operational risk mitigation - A
process aimed at decreasing risk
exposure to climate risk events
Operational risk adaptation - A
process aimed at decreasing
sensitivity to climate risk events
Operational risk pooling -
Operational collaboration towards
coping with such types of risks
Crisis management - after-the-fact
Contingency planning / Business
continuity planning - before-the-
fact
Page 107
Figure 48 presents the top 5 risk treatment options chosen by those
impacted by a flood (n=31), with in red the total values from Figure 47.
Figure 48: Types of risk treatment options used when flood impacted
Figure 47 presents the top 5 risk treatment options chosen by those
impacted by a hurricane (n=27), with in red the total values from Figure 47.
Figure 49: Types of risk treatment options used when hit by a hurricane
16.1%
19.4%
22.6%
22.6%
64.5%
Operational risk pooling - Operational
collaboration towards coping with
such types of risks
Operational risk mitigation - A
process aimed at decreasing risk
exposure to climate risk events
Crisis management - after-the-fact
Operational risk adaptation - A
process aimed at decreasing
sensitivity to climate risk events
Contingency planning / Business
continuity planning - before-the-fact
14.8%
14.8%
18.5%
25.9%
66.7%
Operational risk mitigation - A process
aimed at decreasing risk exposure to
climate risk events
Operational risk adaptation - A process
aimed at decreasing sensitivity to
climate risk events
Crisis management - after-the-fact
Operational risk pooling - Operational
collaboration towards coping with such
types of risks
Contingency planning / Business
continuity planning - before-the-fact
Page 108
It becomes clear that those respondents impacted by floods and hurricanes
put more focus on contingency planning and pre-incident preparation.
Climate risk management decision-making
Research Objective 6. To describe how this can inform management
decision-making to improve supply chain resilience.
Question 8 to 11 (n=237) presented the respondents with four statement
on their perceived level of influence on risk management and related
decision making, presented in Figure 50. People felt generally empowered
regarding their influence and level of authority towards their organizations
risk management and related decision making.
Figure 50: Perceived level of influence on risk management decision-making
7%
11%
6%
12%
16%
20%
11%
13%
19%
20%
23%
19%
47%
38%
46%
43%
11%
11%
15%
13%
...influence company policy on
risk management.
...make influential
recommendations on risk
management.
...make changes to risk
indicators in our risk
management processes.
...make decisions based
on risk reports.
I have the authority to....
Strongly
disagree
Agree
Strongly
agree
Disagree
Agree nor
disagree
Page 109
With a Cronbachs Alpha of 0.901,
326
indicating an excellent internal
consistency, all four questions reliably measure the latent variable of
respondents feeling empowered to influence and use their organizations
risk management systems and processes. The findings for all four questions
are very similar when focusing on those respondents that have been
impacted by climate risk events in the past. The same is true for the
answers to all four questions for those respondents with more than 10 years
experience vis--vis de more junior respondents.
Director- and senior-level respondents feel generally more empowered to
influence their organizations risk management systems and processes.
80% of all directors and senior managers agree to strongly agree they have
the authority to influence their companys risk management policy,
compared to 36.8% of respondents in positions below senior level. 75.4% of
all directors and senior managers agree to strongly agree they have the
authority to make decisions based on risk reports, compared to 44.1% of
respondents in positions below senior level.
3.4 Summarizing the results per research objective
Research Objective 1. To identify whether supply chains have been more
than marginally impacted by physical climate change and extreme
weather events over the past three years.
The expert panel agrees unanimously that supply chains have been more
than marginally impacted by extreme weather events over the past three
years, though there is some disagreement on the climate change element.
Climate change is a longer term trend, changes are slow and incremental
and supply chain management generally takes a shorter timeframe
perspective. Extreme weather risk sources should be the focus of supply
chain risk management, and, for some, whether these risks originate out of
climate change is to some extent irrelevant towards their risk management.
71% of the questionnaire respondents agree to strongly agree that supply
chains have been more than marginally impacted by climate risk events
326
Calculated in SPSS 22.
Page 110
over the past three years. When focusing on those respondents whose own
supply chain has been impacted by climate risk events over these three
years, 93.6% agrees to strongly agrees that supply chains have been more
than marginally impacted by climate risk events.
The climate risk event that most impacted their supply chain was flooding
(31.9%), followed by hurricane / cyclone / typhoon (28.7%), drought
(11.7%) and extreme precipitation / monsoon (8.5%). The climate risks
least impacting their supply chains were global sea level rise (0%), global
temperature increase (2.1%) and the occurrence of tsunamis (2.1%). It
becomes clear that it were not climate change related climate risks or
tsunamis, but extreme weather related risks that impacted supply chains.
Research Objective 2. To identify the perceived extent of negative
consequences of climate risk events on the supply chains impacted.
The expert panel unanimously agrees that climate risks consequences on
supply chains should be of a growing concern. Their quantification of climate
risk consequences focuses to an important extent on cost-elements; no
one cares until your bottom line is being impacted.
327
A very precise level
of measurement is regarded as meaningless in relation to the high level of
unknowns related to these types of risk events.
There is no universal rating for negative consequences of climate risk
events; what is regarded as disastrous to one company or sector might
have little to no impact on another. Questionnaire respondents focusing in
their quantification of climate risk consequences on a more equal mix of
cost- and time-indicators. 47% of the questionnaire respondents whose
supply chains had been impacted in the past rated the impact as severe to
critical. Though in the light of their organizations risk appetite, only 23.4%
rated the impact as unacceptable; 58.5% rated it as tolerable and 18.1% as
acceptable. Explanations provided towards their risk appetite focused on the
fact that the overall impact is manageable when impacted operations are
shifted to other countries in which the organization operates and climate
risk consequences were also seen as insured or insurable losses.
327
See footnote 274.
Page 111
Research Objective 3. To identify the climate risks, risk indicators and
related risk categories used in companies Supply Chain Risk Management
Processes (SCRMP).
On average the likelihood of questionnaire respondents organizations
supply chain being impacted by climate risk events is indicated to be as
likely as unlikely over the coming three years.
Flooding is seen as the most likely climate risk event, with 48% identifying
it as likely to virtually certain their supply chain will be impacted by
flooding in the next three years. Extreme precipitation is the second-most
likely event (38%) and hurricanes / typhoons / cyclones the third-most
likely (35%). Climate change-related risk events of global temperature
increase and global sea level rise are not seen as the most unlikely
events. It might be, though this is speculation, that respondents see these
climate change events as instigators of certain extreme weather risk events.
Climate risk indicators
The expert panel interviews showed that indicators need to be very much
localized, focusing on the place-based risks and micro-climates in which the
supply chain is operated. As with indicators on risk consequences, climate
risk indicators also depend on the organizations and sectors contextuality.
When respondents were asked which indicators they would monitor in order
to predict the development of climate risk events they choose a mix of past,
present and future, leading and lagging indicators. The longer term climate
change related indicators are given a low level of importance by the expert
panel as well as the questionnaire respondents.
Risk categories
The expert panel had very diverse views on risk categories, ranging from
those who felt climate risks and related indicators needed their own
category, those who felt they needed their own category under certain
circumstances and those who felt climate risk indicators should be
integrated in existing categories or do not need any category existing or
new.
Page 112
The question on risk categories was not further examined in the
questionnaire, given the use and value added of specific categories vis--vis
integration into existing categories depends on too many factors. It depends
for example on the level of urgency given to climate risks informed by a
supply chain-wide risk analysis, on organization-specific choices made
within the organizations SCRMP, and the level of integration of SCRM within
the wider organizational risk management system.
Research Objective 4. To analyze climate risks by identifying their
consequence severity, risk likelihood, levels of risk exposure and thus risk
ranking.
Flooding, extreme precipitation and hurricanes / typhoons / cyclones are
seen as the three most likely climate risk events impacting supply chains
over the coming three years.
Climate risk events with more severe impact are generally seen as less
acceptable in the light of an organizations risk appetite. When comparing
flooding and hurricanes / cyclones / typhoons there is more of a risk
appetite for hurricanes, rating them as more acceptable climate risk events.
Those who have been impacted by flooding in the past rate the likelihood of
floods occurring in the future considerably higher. The same picture -
though even more pronounced - appears for hurricanes; those who have
been impacted by hurricanes, cyclones or typhoons in the past perceive the
likelihood of it happening again in the future considerably higher than those
who have not been impacted by such an event in the past.
Those who have had past risk exposure tend to be more realistic in their
risk perception. The conclusion is that the perceived likelihood of future
climate risk events is under-estimated by those who have not been affected
by climate risk events in the past and the actual likelihood of such events
occurring will probably be higher than their estimate.
Page 113
Research Objective 5. To make recommendations on implementing this
information into the SCRMP.
When looking at risk treatment options, contingency planning is not
surprisingly the first risk treatment option chosen (54.3%). Crisis
management is the second treatment option (26.6%), followed by risk
pooling (22.3%), risk adaptation (22.3%) and risk mitigation (19.2%).
It becomes clear that those that have been impacted by floods and
hurricanes put more focus on contingency planning and pre-incident
preparation, rather than focusing on post event crisis management.
Research Objective 6. To describe how this can inform management
decision-making to improve supply chain resilience.
When looking at the questionnaire respondents perceived level of influence
on risk management and related decision making, people felt generally
empowered regarding their influence and level of authority towards their
organizations risk management and related decision making. Though
respondents in positions with more responsibility, i.e. director- and senior-
management level positions, felt more empowered to influence their
organizations risk management and decision making than those in lower-
level positions.
Respondents who have been impacted by climate risk events in the past
feel equally empowered to influence and use their organizations risk
management systems and processes as those who have not been impacted
by climate risk events in the past.
Page 114
CHAPTER 4 DISCUSSION AND REFLECTION
4.1 Introduction
Projecting earlier quoted statements by James lovelock and Niels Bohr
328
onto the data analysis findings, a conclusion would be that predictions about
future climate risks and especially climate impacts are inherently difficult
and complex due to human factors interceding with climatic risk sources.
329
4.2 Critical analysis towards the research objectives
Research Objective 1 has been conclusively answered. Supply chains have
been more than marginally impacted by climate risk events over the past
three years. Due to the context-specific climatic and geographical
circumstances of climate risk events it is hard to say whether that always
impacted global supply chains. Deductive reasoning however and examples
presented, like the Thailand floods, hurricanes Sandy and Katrina, etc. lead
to the conclusion that localized events have impacted regional as well as
global supply chains. Any climatic event will have an impact on supply
chains, particularly in an era in which we are moving towards leaner supply
chains with less inventory held in different points within the supply
chain.
330
The trend of lean and JIT has, in that sense, perhaps gone too
far.
Data also shows that there has been a constant growth in the yearly
number of natural catastrophes over the past 40+ years
331
and, though not
presenting a conclusive pattern, cost per natural catastrophe has been
rising over recent years
332
.
The expectation was that the perceived negative consequences in Research
Objective 2 could be quantified in monetary values, though developing
universal financial ratings to quantify the negative consequences of climate
328
See footnotes 1, 291 and 291.
329
See footnotes 36, 37 and 40.
330
See footnotes 38, 262 and 278.
331
See footnotes 113 and 116.
332
See footnotes 119, 120 and 121.
Page 115
risk events turned out to be inappropriate; what is regarded as disastrous
to one company or sector might have little to no impact on another.
333
The identification of climate risks and climate risk indicators in Research
Objective 3 resulted in satisfactory answers. Respondents preferred a mix of
cost, time and social indicators though the appropriateness of specific risk
indicators and the focus on particular climate risks depend very much on
the individual company, the sector in which it operates and the operational,
geographic and climatic contexts in which its supply chains function.
334
It should be noted that apart from climate risk sources, non-climatic risk
sources on all operational levels have the potential to ameliorate climate
risk consequences and vice-versa climate risks also potentially influence the
impact of other non-climatic risk sources.
335
Expert panel interviews showed that the use and value added of specific risk
categories for climate risk events vis--vis integration into existing
categories depends on too many factors
336
and the research element of risk
categories was not further pursued in the internet-mediated questionnaire.
Looking at Research Objective 4 it is clear that hurricanes / typhoons /
cyclones and flooding are seen as the most likely climate risk events
impacting supply chains over the coming three years,
337
but at the same
time there is more of a risk appetite for hurricanes / typhoons / cyclones
over flooding.
338
Based on the data it is hard to develop a risk ranking,
given it is not simply the sum of consequence severity and risk likelihood.
Moreover, risk rankings need to be developed for specific supply chain
nodes and linkages to identify the appropriate risk management approach.
The statistical analysis of questionnaire data in the previous chapter
consisted of mostly descriptive as well as some inferential analysis elements
in support of answering the research objectives.
333
See footnotes 296 and 297.
334
See footnotes 136, 282, 294 and 296.
335
See footnotes 102, 103, 123 and Annex 2.
336
See footnotes 299 to 310.
337
See Figure 41.
338
See Figure 44.
Page 116
Looking at the dataset of 393 responses, it would have been interesting to
examine the use of multivariate statistics analysis techniques like principal
component analysis, exploratory factor analysis and/or discriminant function
analysis. The two main reasons not to use multivariate statistics were first
of all time constraints. Secondly it was questionable whether this level of
deepened analysis would result in new findings towards the research
objectives. It is planned to do a deepened analysis later, when developing
an article for a peer-reviewed journal on the researchs findings.
The macro level overarching scope of this research has been great to
develop a sense of direction and perspective towards climate risk
management in supply chains. However, SCRMP should focus on the
contextual elements of nodes and linkages that constitute a supply chain.
This research provides general direction on what to include and think about
when developing climate-specific supply chain risk elements, but it does not
provide recommendations that can be readily applied onto one specific
supply chain.
4.3 Critical analysis towards the research design
The non-randomized sampling method
339
used for the questionnaire was not
ideal, but given the lack of clear population figures and time constraints it
was one of the research design choices made.
Looking at the level of respondents experience there seems to be skewness
towards the 1-10 years experience bracket.
340
This skewness could be
explained by climate risk management being a relatively new field and as
such the data does represent the wider population. Or the skewness is
because the internet-mediated questionnaire attracts more technical savvy
and often younger professionals. Without clear population data it is hard to
predict the extent to which the sample represents a population, which does
impact the findings generalizability.
341
339
See Paragraph 2.4.
340
See Figure 29 and 30.
341
See Paragraph 2.7.
Page 117
The climate change-related risk events of global temperature increase and
global sea level rise are not seen as the most unlikely climate risk events
to mature over the next three years.
342
It might be that respondents see
these events as instigators of certain extreme weather events. Equally
plausible is the explanation that snowball sampling resulted in an over-
representation of respondents predisposed to a concern about climate
change.
Control statements that were part of the initial questionnaire design were
taken out, because they would not provide conclusive evidence of non-
response bias
343
. And having specific climate change statements in the
questionnaire could also result in response/social-desirability
344
or order-
effect
345
bias developing. The expert panel was used as an independent
third party to check whether sufficient efforts had been made to guarantee
validity and reliability; given conclusions on ones own research bias are
often not the most objective.
346
342
See Figure 41.
343
See footnote 247.
344
See footnotes 228 and 229.
345
See footnote 231.
346
Hansen et al. 2014.
Page 118
CHAPTER 5 CONCLUSIONS AND RECOMMENDATIONS
5.1 Conclusions towards the research objectives
It is true that what makes complex supply chains leaner and more
responsive in a stable environment also increases their vulnerability to low-
probability/high-impact risk events, like climate risk events.
347
The trend
towards lean and JIT from a supply chain efficiency perspective has
perhaps gone too far and might result in inefficiencies in other areas, for
example in risk and business continuity management.
The high levels of uncertainty of occurrence and impact of climate risk
events make it hard for managers to guide their organization to take
appropriate action. We should not be holding ourselves back by trying to
come to the best description of risk management,
348
or the most perfect set
of indicators.
349
The process of risk assessment is clear
350
and the focus
should be on those risk sources relevant to your particular supply chain
context.
It was Robert W. Kates
351
who first stated that the problem is not to cope
with any of these [environmental] hazards, but the issue is that it may
be impossible to cope successfully with all of them.
Supply chains are not only vulnerable to disruptions in their network,
infrastructure and assets within nodes and links, but due to high levels of
inter-connectedness and inter-dependencies they are increasingly
vulnerable to disruptions on the side of their suppliers, customers, transport
providers, communication lines and other elements in the wider supply
chain environment.
352
While the likelihood of any one event that would
have an impact on any one facility or supplier is small, the collective chance
that some part of the supply chain will face some type of disruption is
high.
353
347
See footnote 36.
348
See footnote 72
349
See Paragraph 1.7.
350
See footnote 77.
351
Kates 1978.
352
See footnote 81.
353
See footnote 127.
Page 119
Current-day increased human-nature inter-connectivity in the natural
environment makes that climate risk events will always have some
component of human origin.
354
And while climate risk sources can develop
into risk events on their own, they often dont take place in isolation and
frequently are a compounding, contributing factor or risk trigger adding to
existing or evolving lower-level risk sources and vulnerabilities. Climate risk
events can result in direct climate risk consequences or indirect
consequences through the exacerbation of existing organizational,
infrastructural and supply chain level vulnerabilities.
355
Supply chains cover,
are embedded in and influenced by risk events originating from and coming
into existence on various operational levels, eventually impacting the supply
chain on process level.
356
Yes, climate risk events should be of growing concern. Natural catastrophic
events have been on the rise since 1970,
357
for the last three years there
have been more natural risk events than man-made ones,
358
the average
economic loss per event is on the rise
359
and 71% of the questionnaire
respondents agree to strongly agree that supply chains have been more
than marginally impacted by climate risk events over the past three years.
Climate risks pose place-based risks, i.e. exact geographic locale is of
importance,
360
more than a high level of accuracy regarding risk likelihood
predictions.
361
For example, it is much more useful to know with 80%
certainty that your distribution centre is in the path of a hurricane making
landfall tomorrow or the day after, than knowing with 99.9% certainty that
a hurricane will make landfall tomorrow somewhere on a 50 kilometre
coastline.
Risk indicators have been discussed in Paragraph 1.7, examples of climate
risk impact/consequences indicators can be found in Table 8 and Figure 40.
Examples of climate risk likelihood indicators are presented in Table 9 and
Figure 42.
354
See footnote 94.
355
See footnote 102.
356
See footnotes 102 and 103.
357
See footnote 116.
358
See footnote 114.
359
See footnotes 119, 120 and 121.
360
See footnotes 294, 295 and 296.
361
See footnotes 275.
Page 120
Very few management decision-making situations are taking place with
perfect information. This certainly holds true for climate risk events; The
probability of occurrence of longer-term continued climatic change is very
likely to be virtually certain,
362
what is lacking is a high level of certainty
regarding the increasing frequency and intensity of extreme weather events
for specific locations in which organizations operate.
363
It was assumed that risk management information should always instigate
pre-incident management decision-making. It turns out that pre-incident
decision-making more often than expected
364
focuses on post-incident risk
management. Companies
365
and individuals
366
seem to be more realistic and
take more realistic risk management approaches towards experienced risks
rather than expected risks. But it is a sit and wait adaptation strategy
367
that will eventually result in a negative climate risk experience. With the
increasing occurrence of climate risk events and more being known about
their potential risk consequences, proactive adaptation strategies and
contingency planning should be sought.
From a practical risk management point of view the climate change
discussion displays a longer term development and extreme weather events
are what need to be managed in the short term.
368
Whether these events
and climate change have a causal link, are anthropogenic or a natural cycle
is to some extent irrelevant from a risk management perspective.
369
From a strategic perspective companies need to look at supply chain risk
management more holistically, accept that climate risks are intertwined with
a multitude of other risk and non-risk factors impacting supply chains
370
and
related risk management; the trend for leaner supply chains being one of
these non-risk factors with a clear trade-off towards (climate) risk
management.
371
362
See footnote 154.
363
See footnote 155.
364
See Figure 47.
365
See footnote 159.
366
See footnotes 179 and 180.
367
See footnote 156.
368
See footnotes 260, 262, 264 and 297.
369
See footnote 261.
370
See footnote 296.
371
See footnotes 277 and 278.
Page 121
5.2 Impact of the study
The aim of this research was to add to the body of knowledge on supply
chain risk assessment from a climate risk perspective and complement the
existing research on supply chain risk management (SCRM) indicators and
risk assessment.
The findings might be useful in the development of future SCRM
frameworks. Information on risk likelihood and impact indicators could
support a more streamlined integration of climate risk indicators in SCRMPs.
Senior management can use the outcome of this research to inform their
SCRM and related decision making towards supply chain resilience.
It would be interesting to use the findings in a case study focusing on one
supply chain impacted by climate risk events in the past. Another intriguing
possibility for future research would be to execute a similar questionnaire
within one global company, like Unilever, in which the researchs population
would be known, improving generalizability, and findings would be more
readily applicable.
5.3 Recommendations for future research
The interaction between different types of risk sources climatic as well as
non-climatic risk sources was not part of this study, but the interaction
between different risk sources
372
or between risks on the different levels
373
at which supply chains operate would make an interesting topic for a
scenario analysis or case study.
Climate risk insurance cost was seen as an indicator of climate risk impact
as well as a predictive indicator for the likelihood of climate risk events
occurring. Areas with higher climate risk insurance premiums are seen as
areas more likely to be hit by climate risks events as well as areas where
climate risk events are expected to have a higher impact compared to areas
with lower climate risk insurance premiums.
372
See Figure 12 and footnote 123.
373
See Figure 7 and footnote 102.
Page 122
The interface between climate risk insurance premiums, risk likelihood and
climate risk impact is an interesting one, but no causal relations can be
distinguished on the basis of this researchs data. The area of climate risk
insurance premiums, likelihood and impact of climate risk events and
related organizational decision-making on risk insurance is worth exploring
in future research.
Another topic for future research relates to the use of sustainability and
resilience titles in companies, like Chief Sustainability Officer or Chief
Climate Change Officer. Does the use of a specific title put the topic in the
limelight / on the agenda, or does it result in the responsibilities towards
cross-topics being moved into one location, out of sight from the companys
core business? Would such a title be perceived differently within the
company vis--vis by those outside the company? And do initial reasons
behind creating such a position move beyond reputational benefits?
Page 123
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ANNEX 1: Members of the research expert panel
An expert panel was developed for reflection during data collection,
development of research datasets and subsequent data analysis. The expert
panel consisted of the following members:
Colin Airdrie (Mr.), Managing Director of LBA (Logistics Bureau Asia)
Consulting Ltd. Bangkok, Thailand.
Prof. Gyngyi Kovcs (Ms.), Erkko Professor in Humanitarian Logistics at
Hanken University Helsinki, Finland, and Director of the Humanitarian
Logistics and Supply Chain Research Institute (HUMLOG Institute).
Ira Feldman (Mr.), President & Senior Counsel with Greentrack Strategies
Bethesda, United States.
J. Kevin Watson, Ph.D., PE (Mr.), takes part in the panel as independent
subject matter expert on the topics of Life Cycle Logistics and Supply Chain
Management. He works at NASAs Logistics Division, NASA Headquarters
Washington DC, United States.
Joyce Coffee (Ms.), Managing Director of the Notre Dame University Global
Adaptation Index (ND-GAIN) at the Environmental Change Initiative,
University of Notre Dame Chicago, United States.
Dr. Laura Birou (Ms.), Associate Professor Department of Management and
Information Systems, Louisiana Tech University and Director of North
America at International Institute for Advanced Purchasing and Supply
United States.
Michael Keizer (Mr.), Consultant Logistics for Global Health and Aid with,
among others, The Global Fund Melbourne, Australia.
Nancy Gillis (Ms.), Senior Manager Sustainable Procurement, Supply Chains
and System Dynamics, Ernst and Young Washington DC, United States.
Page 158
Peter Jones (Mr.), Managing Director, Logistics Learning Alliance Ltd (LLA)
Leicester, United Kingdom.
Peter Murray (Mr.), Managing Director Sustainable Value Chain Solutions at
Supply Chain Insights Philadelphia, United States.
Dr. Sander de Leeuw (Mr.), Associate professor of Logistics (Vrije
Universiteit Amsterdam, The Netherlands), Professor of Operations
Management (NBS Nottingham, United Kingdom).
Steve Leon (Mr.), Clinical Professor of Supply Chain and Operations
Management, University of Central Florida Orlando, United States.
Dr. Steven Dunn (Mr.), Professor, Director of the Center for Sustainable
Enterprise, Department of Finance and Business Law, College of Business,
University of Wisconsin Oshkosh.
Taylor Wilkerson (Mr.), Supply Chain Risk and Sustainability Expert, LMI
Research Institute Virginia, United States.
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ANNEX 2: The July-November 2011 Thailand floods and
disruptions in the global hard disk supply chain
The July to November 2011 Thailand floods impacted the worlds production
and supply of computer hard disks. With 40% of production capacity being
concentrated in Thailand, one third of the industrys output was hit and it
would take the IT industry almost a year to get over the effect of the floods.
The main hazard was the landfall of Tropical Storm Nock-ten, increasing
the normal rainfall of the monsoon season already underway for two
months. The main climate risk source was the build-up of water due to
this increased rainfall in combination with as discussed later the human
risk source of poor water management at Thailands Nothern dams early in
the year, causing them to fill to capacity more quickly than expected and
the need to let the water go. The main climate risk event was flooding,
resulting in the risk of inundation of factories with the risk consequences
being a loss of assets, infrastructure, production capacity, company stock
value and market share.
The climate risk event developed at Operational Level 4 The Natural
Environment, with risk sources partially coming from lower levels.
Figure 51: Western Digital factory inundated by flood waters
374
374
Fuller 2011, Figure 1.
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But not all companies were equally exposed; Western Digitals two hard disk
production facilities were inundated, while Seagate had chosen a higher
area further away from the flood plains for their two factories. This choice
resulted in longer transport lines, but it also limited flood risk exposure.
Western Digital also produced sliders, a crucial hard disk part, in their
inundated factories and these were produced in Thailand for most of their
production facilities in other countries. Western Digital also had its main
vendors concentrated in flood area industrial estates, whereas Seagate had
its vendors more dispersed. This concentration of production of one crucial
part in a flood-prone area and of centralized / isolated vendors increased
Western Digitals risk sensitivity and created a knock-on effect.
Due to the low supply of hard disks worldwide prices spiked 20%, which
increased Seagates profit margin from 20 to 30% for a while. Seagate had
limited its exposure and vulnerability by making smart choices with
respect to Level 2 Assets and infrastructure dependencies, as well as
Level 3 Inter-organizational networks.
Western Digital, however, showed very strong adaptive capacity, by
quickly adjusting its financial estimates, informing their shareholders and
being transparent about how they were tackling this particular risk event;
not just waiting for the water to go down, they increased production
capacity in their Malaysian plants and they moved key staff temporarily.
Their quick and sensible risk management resulted in the final risk impact
being kept at bay, regarding company stock value and market share.
There were a number of human risk sources in this risk event, for
example the poor water management at Thailands Northern dams release
from the reservoirs should have started much earlier, the slow construction
and poor maintenance of flood barriers, poor government-level disaster
management, poor communication between provinces and government
ministries, and very poor communication about the disaster and disaster
management decisions towards those affected.
375
375
Fuller 2011; Kovar 2011; Ribeiro 2011; Struck 2011; Yuvejwattana 2011; Zhang 2011; Chu 2012;
Maleval 2012a and 2012b.
Page 161
ANNEX 3: Interviewintroduction and consent
Dear interviewee,
This interview is taking place as part of my MSc thesis research study. The
aim of this research is to study climate risk indicators as part of the Supply
Chain Risk Management Process (SCRMP), to facilitate the development of
risk adaptation and mitigation plans to improve supply chain resilience
towards physical climate change and environmental risk sources, including
extreme weather, to be called climate proofing.
I would like to start with thanking you for taking part in the researchs
expert panel. The expert panel is an important tool in the refinement,
validation and triangulation of data collected as part of this research study.
This interview will take approximately 45 minutes to an hour of your time
and will follow a semi-structured non-standardized interview protocol. This
means that there will be a number of fixed open-ended and close-ended
questions, but there is space to deviate from the questions and have
discussions beyond these fixed questions.
The aim of this interview is to inform, verify and refine the descriptive
elements of the first three research objectives to inform the development of
the subsequent internet-mediated questionnaire, which will be sent to a
wider group of supply chain and risk management experts.
Please note that the interview will be recorded. The reason for this is
twofold; First to not get distracted during our conversation by the need for
physical note-taking, and secondly to be able to verify answers at a later
stage. A transcript of the interview will be sent to you for verification.
Please note that by participating in this interview you consent to your
responses being used within this research study. The interview transcript
will not be shared with any third parties and separate consent would be
requested if any quotes from the interview would be used in the final report.
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ANNEX 4: Interview protocol
Time of interview at interviewers location:
Time of interview at interviewees location:
Date:
Place:
Interviewer:
Interviewee:
Gender interviewee:
Position of interviewee:
Q.1. Do you feel supply chains have been more than marginally impacted
by physical climate change and extreme weather events (to be called:
climate risk events) over the past three years?
Q.2. Can you give a few examples of supply chains being impacted by
climate risk events?
Q.3. How would you describe the extent to which supply chains have been
impacted, the extent of negative consequences of climate risk events?
Q.4. The risk consequence as used in a risk matrix has a scale from
'negligible' - 'minor'- 'moderate' to 'severe' and finally 'critical'. Does
the use of such a scale allow for objective results and comparison
between risk events?
Q.5. Any thoughts on how to quantify climate risk consequences?
Q.6. From a risk management perspective; should climate risks and related
risk consequences on supply chains be of growing concern, or not?
INFO: Risk indicators are metrics used to monitor identified risk exposures
over time. Indicators may represent key ratios tracked as indicators of
evolving risks, or they may be more elaborate and involve the aggregation
of several individual risk indicators into a multi-dimensional score about
emerging events that may lead to new risks. Climate risk indicators are
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those risk indicators that link directly to physical climate change and
weather-related risk exposures.
Q.7. Could you come up with climate risk indicators to be used in
companies Supply Chain Risk Management Processes (SCRMP)?
INFO: Risk categories indicate the grouping of risks by characteristic supply
chain or organizational elements, for example; demand risks, process risks,
transportation risks, disruption risks, delay risks, organizational risks, etc.
There are various ways of categorizing risks.
Q.8. Could you come up with risk categories in which climate risk indicators
are, or should be, taken into account? Or do you feel that climate risk
indicators should have their own, or no specific risk category?
Q.9. Would you have any comments towards the result of the literature
review and how this should inform subsequent research steps, taking
into account the research objectives?
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ANNEX 5: Interview transcripts
Interview 1: Taylor H. Wilkerson
Time of interview at interviewers location: 15:38
Time of interview at interviewees location: 15:38
Date: 8 October 2013
Place: online - Skype - done from Tennessee, USA
Interviewer: Dennis Bours
Interviewee: Taylor H. Wilkerson
Gender interviewee: Male
Position of interviewee: Supply Chain Risk and Sustainability Expert, LMI
Research Institute Virginia, United States.
Answers
[A.1-1] (6m18s) Yes
[A.1-2] You can look at some examples like the Thailand floods, which has
been a pretty dramatic example towards impacts on the supply chain due to
climate change and climate risks.
It is also interest to explore some potential benefits from climate change on
supply chains. One potential benefit that has been talked about a lot is the
opening up of Northern shipping routes, being able to ship more to St
Petersburg given there is less ice.
[A.2] (7m33s) When you are looking at events such as severe weather, it is
perhaps a little tenuous to link these to climate change. But events like
Hurricane Katrina, which dramatically disrupted supply chains as well by
actually taking out the port of New Orleans. Hurricane Sandy did quite a bit
of damage as well.
Any time you have a severe storm it has the potential of impacting local
supply chains, at least temporarily.
[A.3-1] (9m15s) time to recover
lost revenue
lost profit
lost revenue as percentage of total yearly revenue
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[A.3-2] To some extent it depends on the risk event and the supply chain in
question. I know with the Thailand floods there were some significant
disruptions in the supply of electronic components such as hard drives and
others, which impacted the ability of computer manufacturers to keep
product on the shelve. I have not dug into the specific cost of such events. I
know the metrics that some companies use, like Cisco uses, is the time to
recover as a way of looking at the cost of risk events. Others use lost
revenue.
But I dont know for those events any specific cost associated to those.
[A.4-1] (10m30s) Yes, with some constraints
Within a company risk matrices allow for comparison and facilitate
prioritization decisions on which risks to address first.
Across differently-sized companies and supply chains or when comparing
between industries you need to consider differences in definitions of what is
considered as risks and risk consequences.
[A.4-2] I think it does to an extent. I think within a company, within an
organization, it certainly does because you can put some definition on those
scale metrics. When you start looking across companies you have to
consider that there is a relative scale there. So what is considered as critical
or catastrophic for a company like Cisco, which is a multi-billion dollar
enterprise, is different from what is considered critical to a smaller company
with only 15 employees. A 10 million Dollar loss probably isnt that much to
Cisco, but for a small company 10 million Dollars could possibly be the end
of the company.
Within a company a risk matrix allows you to compare risks and make some
decisions around which risks you need to address first, because you need to
prioritize. When we start looking across companies or across supply chains
it gives you a way to look at the relative exposure, but you need to consider
that there is a difference in definition on what would be considered
negligible or catastrophic etcetera for different sized companies.
I think there is also the effect on comparability for different industries. A
two day delay in one industry that manufactures just-in-time might be very
much impacted by a two day delay, while two days in another industry
might not have an impact at all.
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[A.5-1] (13m00s) In general there are pretty good estimate of the
consequences. When you are looking at the probability of occurrence and
the consequences there is always a danger of trying to be too precise.
The metrics of time to recover,
lost revenue or
lost profit allow you to put the consequences in business terms.
lost revenue as a percentage of total annual revenue
[A.5-2] Time to recover basically says it will take us so many days or so
many weeks before we can serve customers again. Lost revenue but it in
the context on what we are directly going to miss when we cannot supply
the product for a given time and keeps it at a high enough level you can still
use reasonable estimates and you get not bogged down in trying to be too
precise about it.
You could use lost revenue as a percentage of total annual revenue, giving
the ability to compare across companies.
Time to recover might be a bit more comparable as well, but you might still
have some issues towards the type of industry; two weeks to recover might
be a really bad number for an electronics company, but maybe a perfectly
acceptable number for a heavy equipment manufacturer for example.
[A.6-1] (15m40s) Yes
[A.6-2] Drought / water scarcity / customer migration / change in customer
needs and preferences / increased electricity need and cost / air quality /
employees health
[A.6-3] When I look at where the risks are from climate change, there are
some immediate ones like extreme weather and those companies are pretty
well tuned in to from a sense of severe weather incidences in general and
how to prepare for them.
There are some others that become a little more interesting in that they
have the potential to catch companies off guard. I think of drought and the
availability of water and what that might do for industries that rely on water
or that rely on agricultural products. Drought and water scarcity have the
chance to be significant.
A secondary one as the climate is changing as you are seeing different
weather patterns, different drought patterns, there is the chance for
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customers to migrate either physically or migrate in the sense of need and
preferences. It is possible that consumer preferences continue to move
towards companies who are actively mitigating climate change.
Another good example of a secondary effect is increased energy needs and
costs. One other is public health. When you look at climate change and
public health you get to air quality due to increased ground level ozone. You
get into health issues that impact your employees health. You can think
about the potential of people taking more sick days from work, not being
able to work at their full potential. It is possible this could create a slow-
down in productivity.
[A.7] (20m50s) rising sea levels
increasing water scarcity
occurrence, duration and intensity of extreme weather events.
[A.7-2] An obvious one looking at shipping lanes would be sea levels,
looking at the ability of that impacting the ports and goods to flow through
different ports.
You could look at water scarcity or at measuring some kind of water stress
in different regions where a supply chain operates.
There should be a way to define a severe weather event and somehow
measure the mode of occurrence, intensity and duration of severe weather
events in the different regions where your supply chain operates and track
and detect whether that trend is increasing. Extreme precipitation, tracking
the amount of water over a certain period of time would be a good
indicator. Looking at the impact of climate change it does evolve a lot more
around changing weather patterns and more extreme weather patterns and
drought as an indicator for water stress in a region would be an equally
good indicator. It does get into an area of not just maintaining production
that requires water, but also health and ability of work forces in a region.
[A.8-1] (25m15s) Specific climate risk category
[A.8-2] There are probably some risk categories like severe weather or
severe natural disasters where climate risk indicators would find a natural
home. However, there are some others that get into the longer term
impacts on climate change, such as the sea level changes, such as
increased water stress or potential public health issues that would tend to
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lead towards a separate category, because they are not going to be found in
other traditional risk categories.
The value added of having risk categories goes to the monitoring and
mitigation of the risks. So being able to separate severe weather from
supply or financial viability provides you to understand the different nature
of those events. Severe weather you have no control over; its going to
happen, probably you only have a few days warning, whereas financial
viability there are ways of tracking, working with suppliers and you will
probably have several months of warning and there is very different
mitigation activities.
With severe weather events it usually takes more of a standpoint of having
a response and recovery plan in place to deal with those. Categories help in
terms of how you monitor the risks and how you respond.
There needs to be a blend of both contingency planning and post risk
management. Companies that are really being effective in risk management
are taking a proactive approach of looking at what the potential risks in
their supply chain are and what they can do to address the likelihood of
occurring and consequences of these risks when they do occur. And at the
same time put into place good response plans that they test and
communicate with their suppliers in order to be able to respond and recover
quickly if things occur.
[A.9] (29m55s) Good review. Good overview of the literature on the
intersect of climate and risk.
Look for: LMI climate change and risk book! Chapter on supply chain
mitigation and adaptation towards climate change.
Comment: Climate risks, with a focus on severe weather events. Other
types of climate risks taken into account less.
Comment: Figure 13; risk matrix, being a mix of direct and indirect risk
consequences. The risk events on there are often not taking place in
isolation!
The risk is not the drought or flood, but the transport delays. Trigger
events!
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Look at: Bow tie risk assessment approach, have a look at it! Risk
analysis/evaluation in the ISO approach, use the bow-tie assessment
approach.
Interview2: Steven Dunn
Time of interview at interviewers location: 17:00
Time of interview at interviewees location: 14:00
Date: 8 October 2013
Place: online Skype - done from Tennessee, USA
Interviewer: Dennis Bours
Interviewee: Steven Dunn
Gender interviewee: Male
Position of interviewee: Professor, Director of the Center for Sustainable
Enterprise, Department of Finance and Business Law, College of Business,
University of Wisconsin Oshkosh.
Answers
[A.1-1] (11m54s) Absolutely Yes
[A.1-2] Obviously the more glamorous ones, like the hurricane that hit New
York, certainly the Fukushima disaster if it is within the last two years. Last
night they had another typhoon hitting the Southeast coast of China and I
believe the number they gave was that it was the 26th that hit them this
year, which was staggering to me. It immediately comes to mind; how are
you going to do business if you have 26 typhoons hitting your supply chain
and/ or your suppliers.
Typhoons hitting the Southeast coast of China
[A.2] (12m55s) Certainly things are changing, there isnt any question. You
can look at droughts. I worked in the food industry for many years and
droughts are something that can absolutely stagger you in the food
industry. You dont expect it, you dont anticipate it and it happens after
youve perhaps already negotiated for your supply at a certain place and
time. Australia is a perfect example with 8 years under drought conditions
being absolutely hammered. [Australian droughts impacting the agri chain]
The central valley of California is the bread basket of the United States, but
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the river system in the valley has been under stress and duress for the past
years. [Water stress in the Californian central valley, the US bread basket]
Its dryer, more people, deeper drilling, lower water tables, also resulting in
seawater moving into the delta.
Hurricanes are perhaps less of a big deal, because you can plan for them.
You know when they are coming typically and Wallmart is an example of a
company that does a great job in taking weather events into account in
their supply chain.
Hurricanes are predictable, tornados to a lesser extent. The climate change
has made storms unquestionably more violent.
And look at a country like Bangladesh, the forever weather whipping boy.
Seriously, that poor country is not going to exist in the long term. The big
challenge is feeding your population and how are you going to provide crops
in an area that is constantly under water?
[Flooding in Bangladesh]
The change in the Arctic is a positive ones with all the supply chain guys
singing haleluja now that we suddenly found a mysterious Northwest
passage and we can suddenly get ships through in now time from Russia.
How to develop mining supply chains in Siberia once the permafrost would
start melting? There would be no way to get through the mud.
[A.3-1] (18m40s) Short term on financial impact.
Long term on social impact, though challenging to measure.
Long term climate change attrition cost, e.g. work force and customer base
migration.
[A.3-2] It can be a couple of things. When looking at single events, its
immediate, its short term and they get around it, cost get up for a while
and then it settles back to normal. The main focus there is on financial
impact.
Long term: In the United States you are starting to hear the words
onshoring and nearshoring again, basically bringing things back closer.
Supply chains have been hyper-extended chasing cost reductions, resources
and cheap labour and it has been enabled by containerization and the
advantages and low cost of modern-day shipping.
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Supply chain climate disasters might make us think about sourcing so far
away, but also about social impact through work force and customer base
migration.
Climate change has a long term attrition cost through work force and
customer base migration.
[A.4-1] (28m20s) Easy to use,
Comparability is questionable
[A.4-2] It is a good question and Id be interested to find out how many
companies are actually using such a scale?!
I like that kind of scale and its an easy way to assess things, but can you
compare things with that?! I think you will run into the issue that there is a
lack of understanding in a firm on what this actually is. Where are the
people who actually understand risk assessment?!
Especially in the C-suite people have not been educated in long term risk
management and there is also the corporate culture of thinking that things
happen to others and not your company. The companies who develop a
culture of long term thinking are the ones that are going to be there in the
end.
Climate change and its impact is like the launch of the Challenger space
shuttle, the one that blew up on launch; you have all those really smart
people somehow coming to a collusive agreement to launch and they get
predictable consequences. You can say the same thing about climate
change and its impact. You got the collective stupidity going on refusing all
the science and if these were your financial figures instead of climate
change figures youd be panicking.
[A.5] (33m10s) Figure of financial loss.
The challenge is the interconnectedness of it all, which makes it really hard
in a business context because we like to peel away elements like an onion
till we got something we can measure. You can assume away stuff till you
get a model, but you will assume away stuff that is interconnected.
[A.6-1] <Already implicitly answered and the question was as such not
repeated> Yes
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[A.6-2] The challenge is that we require people we traditionally dont have
in the pantheon of corporate decision-making, leaders who can grasp the
interconnectedness and bring that long-term, cross-sectional, cross-
functional thinking in organizational decision-making and who inspire and
leverage it to get people behind them.
Maybe a companys ERP system can be the climate change risk
management vehicle, given it has that interconnectedness, we invested
heavily in it already, it would legitimize climate risk management decision-
making and perhaps we should model climate change into a companys ERP
system.
We leaned everything to the extent that we can wonder who will be there to
take it on.
In between question (39m00s) on cross-boundary/sectional/functional
thinking. < Most of the rest of the discussion was towards leadership and
has been added to the above answer >
[A.7] (43m45s) Long-term: What about the price of oil? Oil fluctuates very
much on perception of risk.
Temperature change.
Food price index.
Change in water and drought conditions.
Some other wild ones:
- Education per capita as indicator of climate risks (Note from interviewer:
will more be an indicator for vulnerability and exposure, not risk
predictability of events and/or to a lesser extent risk consequences to be
expected)
- Insurance cost as indicator, insurance cost on capital assets.
The challenge is to walk away from the standard business performance
indicators.
[A.8] (52m10s) Specific climate risk category, in the beginning
I think it is a two-sided question. Is it better if you give it a title and you
give it visibility as a category in its own right? This can go two ways: They
make it a title, they add a Chief Climate Change Officer. That must be
important, or it goes like: Well, someone is covering it, so I dont need to
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look at it or think about it. The Chief Regulations became Chief
Sustainability and would then become Chief Climate Change.
In the future climate change, environment and related social links will
become part of a general discussion in supply chains on a daily basis, in all
the elements of the business; operational, financial, processes.
But it is basic change management. You need to create urgency, you need
to make it visible, you give it a title, you get the right people on the bus
before it becomes part of mainstream decision-making.
It does take recognition at the top and that is where it becomes a challenge.
In the end you will need climate change indicators in a lot of categories, but
you need to start someone and someone needs to manage the store.
Examples: SC Johnson / Wallmart.
[A.9] (62m20s) Laid out well.
Note: Tip; find examples of firms who are leading.
(Ask Nancy Gillis and Ira Feldman). SC Johnson (?)
3PL and their impact on decision making in companies is huge, because the
use of 3PLs is the abdication of your own management responsibilities by
outsourcing in the name of efficiency of course.
I think the firms that have a lot of 3PL activity might have abdicated the
supply chain risks by distancing, outsourcing to 3PLs and they dont
understand the reach anymore this has on supply chain and sourcing risks.
Firms are looking at their finances, the quality and speed, and they look at
it from a legal perspective to see where they can hold someone else
responsible when it goes wrong.
- Incident-driven response to risk management?! Role of social media? (BP)
- How does it inform decision making?! Change management
- The impact of regulations on their behavior?!
- Driven by energy efficiency / lowering the carbon footprint?!
Page 174
Interview 3: Kevin Watson
Time of interview at interviewers location: 18:05
Time of interview at interviewees location: 18:05
Date: 23 October 2013
Place: Washington DC, in person
Interviewer: Dennis Bours
Interviewee: Kevin Watson
Gender interviewee: Male
Position of interviewee: takes part as independent subject matter expert on
the topics of Life Cycle Logistics and Supply Chain Management. He works
at NASAs Logistics Division, NASA Headquarters Washginton DC, United
States.
Answers
[A.1-1] (0m20s) Yes, extreme weather events.
[A.1-2] Certainly extreme weather events. The degree to which those are
driven by climate change is uncertain.
[A.2-1] (0m45s) I think of the Thailand floods, though Im not sure it is
within the two year timeframe. Drought impacting barge transport on the
Mississippi river.
[A.2-2] Hurricanes, severe storms certainly could influence shipping and air
transportation. It would not necessarily preclude transport, but there might
be diversions with scheduling impacts and perhaps some cost impacts.
Extreme heat can cause buckling of railway tracks, which then could cause
significant diversion or the need for a selection of alternate transportation
modes, which could affect cost and schedule. Extreme drought can have an
impact if you are dependent on barge transportation, on rivers. And that
has actually happened in the United States in recent years in the case of the
Mississippi river impacting barge transportation.
[A.3-1] (3m00s) cost consequences
schedule consequences.
[A.3-2] I dont have specific metrics in mind for particular incidents. But in
general the type of effects that would be measurable be potential schedule
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impacts either because of the simple inability to transport because of the
risk event, or diversion as a result, or in some cases schedule impacts due
to deterioration of the infrastructure. Pretty much for all of those there
could be a cost impact as well.
[A.4-1] (4m40s) Yes
[A.4-2] Trying to overly quantify a risk, making it too precise, almost would
make it become meaningless. In most cases there be enough unknowns
that you would not have a very high confidence in a very precise level of
measurement. So you can have a very precise number, but your plus and
minus range would have to be fairly significant to encompass the possible
actual value, given the level of assumptions needed to come to such precise
number.
For example: If you would be having a hurricane on a coastline and you
have a very precise number for the possible financial risk consequence, then
the actual value in practice will for example depend on what side of the eye
of the hurricane you are on, i.e. one side might have tidal surges and heavy
rains, while the other side has an offshore wind. Your contingency planning
should cover the range, but in terms of trying to pin down the risk
consequence you will be within a range and a very precise value would not
be so useful.
Using a risk matrix for comparison you would probably learn more
comparing different types of events. If you would try to compare the
consequences of a category 1 hurricane and a category 4 hurricane there
would be some difference potentially, but well.
As a second answer, any individual entity should probably look at what are
the most likely risk events to affect them given their operational and
geographical context. Your probably would need to look at the likelihood of
the various types of risk events. If you would be doing a broader general
approach like for your study for supply chains in general, then maybe you
would want to assess and compare the different types of risk events as
opposed to the severity of individual types of risks.
[A.5-1] (11m20s) Yes, not too precise. See A.4-2.
[A.5-2] The quantification of climate risk consequences could be both
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time based and
money based.
It also depends on the type of risk event and perspective. Some risk events
will have mainly a short term financial impact, whereas other risk events
have both a financial as well as a serious downtime consequence translating
into a ripple effect.
From your customers perspective there is a schedule effect and from your
perspective there is the cost of making up for down time, cost of making up
for lost production.
The other thing is what is the impact of a climate risk event on your
employees? Your facility might have suffered limited impact, but your
employees may be more subject to the effects of the risk event. Now they
are going to be preoccupied with their personal situation. The other thing is
that you need to think of the company not just as this monolithic entity, but
its got people working for them that might be impacted. Employees loss,
how to quantify that?
[A.6-1] (13m52s) Yes.
[A.6-2] In my opinion climate change is a real issue. I think its a serious
issue that is going to result in increasing negative consequences, both in a
very broad sense but also in terms of acute weather-related events that will
be exacerbated by climate change.
[A.7-1] (15m20s) Temperature changes
Changes in river water levels
Change in precipitation levels and intensity
[A.7-2] I think it is a challenge. You have climate change so you can have
indicators, some metrics, that help you track the magnitude of climate
change over time. That could be temperature, delta temperature against a
historical mean, precipitation.
So you can have climate change indicators. The key the is whether these
directly relate to potential risk events? I think the issue is that the key risks
to industries are probably more weather related risks, with exceptions. So
somehow you have to translate from the climate related risk metrics to
weather related risk metrics. The probability of extreme weather events
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changes as the climate changes, so there is some transformation function
that has to exist between the two.
An increase in precipitation over time in itself would be difficult to view as a
particular risk towards supply chains. Somehow you have to translate that
into acute effects that impact supply chains.
One climate related metric that could be related to supply chains might
have something to do with mean annual rainfall, but the actual supply chain
risk has to do with river flow, aquifer level, etc. translating into river water
levels or aquifer levels as the main climate risk indicator.
There is no need to waste time and effort to monitoring a basket full of
metrics if a lot of them dont really measure any impacts in the context of a
specific supply chain.
You want the ones that are relevant to you, you certainly want to monitor
those risk events that have the most severe impact on you, but it also only
makes sense to monitor those that relate to climate risk events that you
can do something about. That either you can prepare for, or you can have
backup plans for, or you can respond to in some way. If its something you
cant do anything about, then theres no point in monitoring it.
[A.8-1] (22m18s) Depends on what the company sees as critical
[A.8-2] A choice for certain risk categories should be informed by and
concerned with whatever impacts the company. If what they are most
concerned about is schedule, then your climate risks should end up in a
category that is schedule related. If its weather impacting cost of materials,
then use your climate risk indicators in a related category.
Whatever you feel is the most critical, the category impacting the most and
then focus on risk events that are most difficult to adjust to.
[A.9] (24m40s) I enjoyed reading it and thought it was really interesting.
Discussion of financial impacts (Swiss Re data) -> The cost of natural
disasters to economy is growing, but is it because of the increase in
incidents and magnitudes of those disasters? Or is over time the size of
population / industry growing, i.e. has the location changed, resulting in
more of a cost impact when it is being hit.
Add a caveat on what is real cause and effect here!
More losses does not mean that is due to more climate change impact.
Page 178
Interview 4: Nancy Gillis
Time of interview at interviewers location: 17:05
Time of interview at interviewees location: 17:05
Date: 24 October 2013
Place: Washington DC, in person
Interviewer: Dennis Bours
Interviewee: Nancy Gillis
Gender interviewee: Female
Position of interviewee: Senior Manager Sustainable Procurement, Supply
Chains and System Dynamics, Ernst and Young Washington DC, United
States.
Answers
Addendum to the statement of use of the interview:
In answering the questions Mrs. Nancy Gillis will drop on some of the
activities she did when she was a United States federal government
representative and any answers given and comments made are of Mrs.
Gilles her own opinion and interpretation, and she does not speak in any
form or fashion on behalf of the United States federal government.
[A.1-1] (1m32s) Yes.
[A.1-2] I believe the most often cites example are the Thailand floods that
are well know to have impacted several sectors as far as their ability to deal
with the resulting supply chain disruptions given they missed certain
components they needed for the products they supply.
[A.2] (2m08s) One that people actually dont think about in the supply
chain mandate is the impact of super-storm Sandy on New York city and in
particular the area we [Red.: EY] look at, which is the supply chain within
the city of the pharmaceutical suppliers and/or the resellers of
pharmaceuticals or drugs, and the impact on the population.
There is the impact of extreme weather events on a customer base when
the event happens.
In Ernst & Young we talk to our clients about supply chain resiliency and
their ability to plan for climate change events, which we understand
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exacerbates natural resource shortages. Most organizations do look at it
from the supply side, so having the ability to gain access to agricultural
sources and so forth, and they look at it from the infrastructure, the
connective tissue, so the supply routes as well as the ports, airports and
other ways via which transportation actually happens.
Very few of the actually look at it from the demand side and a lot of growth
for American companies is in emerging markets, which are the least
equipped to deal with climate change. How their products are currently
produced, delivered, what they are comprised of and how they are used
may actually change in those markets as climate change takes hold. It is
very challenging to change a products composition to contain the brand
promise.
An example would be Tide as a washing detergent and how does a brand
that has a promise that is dependent on water and electricity change in a
market in which you cannot count on either of the two being available.
[A.3] (2m44s) impact on customer-base during weather events.
climate change events exacerbating natural resource shortages.
demand side impact, especially in emerging markets.
[A.4-1] (5m45s) Yes, with some constraints
If one could have confidence in the predictiveness of the volatility of the
weather events.
I think the comparability between events is lost.
[A.4-2] To me, that is exactly the challenge of climate change. You dont
have linear predicatability any longer and the volatility as well as the actual
breadth and depth of impact is an unknown.
Though I would not know how you would use such a matrix, except after
the fact. Which means that it is not a good risk indicator. All the things that
you would normally use for a risk indicator would not work. You can only
come to an agreement that the risk event that already took place was of
equal parity, bad or not. There would be little value in after the fact
comparison, because it is questionable how predictive you can be on climate
change with a risk matrix. So apart from everyone agreeing that it was
bad, trying to take that data and feeding it into a predictive model would
be very helpful.
Page 180
I think the comparability between events is lost. People talk about rising
water, but the actual challenge is not the ocean rising in essence, it is storm
surges after events. You can do some comparison predictively to
understand what to expect from a storm surge and what the risk is, if that a
storm event of similar magnitude would then hit again you would have a
baseline for preparedness.
The challenge is though that there is a cost to that level of preparedness.
Without linear predictability on how often that storm may occur it is
challenging to have a discussion about preparedness and use that risk
information, because you can only say with limited certainty that the cost of
preparedness is worthwhile.
The crux of the problem of risk analysis of climate change is the non-
linearity of what climate change means. Risk analysis in the supply chain on
climate change should identify where the company should not go first and
foremost, as well as what they may be able to ask of their suppliers as
minimal safeguards. But then I really see an opportunity (and a risk) for the
insurance sector, because of their ability to insure against what may be less
probable, but still potential, to where corporations would be protected. As
such there is a growth in changes to assets that is in that space, but also an
increase in financial responses insurance to climate change risks in the
supply chain.
You have the tangible response; you do some physical change to the asset
thats there. Then there is the information piece and I think thats an
interesting one. You now see that information is putting risk back into the
supply chain, for example co-location for sustainability where warehousing
and distribution come together, like it also increased risk in Thailand. And
the last piece being the financial.
(10m20s)< Discussion first started on insuring, which is added to the
previous answer >
[A.5] (15m35) Money.
financial loss of market share
loss of life
loss of customer-base.
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In the end you can take anything and quantify it to a unit youd wish.
There is the business as the organization and their unit of measurement is
dollar (money), or market-share and costs into dollar. You have non-profit
or research organizations, which are interested in the data on the possible
consequences. Their unit is data. And then there is government, which
tends to quantify in dollar and loss of life, i.e. threat to their populus.
If you talk about environmental sustainability you talk about resource
availability and there time is more predictive. A water resource for example
does not disappear in its entirety over night. The whole point about climate
is that time is no longer a predictive component. You dont know when and
for how long those weather events will occur. Time continuum in weather
events is lost, which makes the cost component so challenging.
[A.6-1] (18m40s) Yes, they should be.
[A.7-1] (19m27s) increased volatility of weather events
Long term temperature differential
[A.7-2] The number one climate risk indicator is place.
Climate change and environmental sustainability pose place-based risks, i.e.
exact geographic locale is of importance.
In EY we define climate related risks predominantly towards the
unpredictable nature of weather events, which we coin into the term
increased volatility of weather events as measure. Drought, water
availability, long term temperature change, other resource availability,
those we term under sustainability risks. And those may be exacerbated by
climate change, but some of those are predicated upon human use of those
resources and therefore arent initially really linked to climate change.
You actually first need to track what are some of the sustainability
constraints, those being resource availability constraints. And the
understand how climate change play a role either through adding an
additional risk factor through extreme weather events or climate change will
only exacerbate those sustainability risks.
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Long term temperature differential is a big one. And that is one that
companies should look more at, because that generates an understanding
of where your sourcing will come from in the next 10-20 years, as well as
understanding that the change in the seasons is giving rise to different
types of biological risks, such as pests. Case in point; Greening disease in
Florida wiping out the entire orange growth. Im not saying thats climate
change related as far as causality, but Im not aware of a study that has
disproved any correlation between the change in weather patterns, lack of
strong winters and the bacteria that has caused that.
[A.8-1] (26m20s) Take into account in existing categories
[A.8-2] I think climate risk indicators on climate change, extreme weather
events and sustainability should be included in existing risk categories,
demand being a primary, transportation, organizational.
The way we break it down simplistically is that we break it down not only as
supply chain but as value chain, that is inclusive of customers on the
demand side. And we take an asset perspective that is organizational,
meaning that in the C-suite we talk about risk appetite and not in supply
chain terms.
< Left value chain/rare earth discussion out of it for the data analysis part,
though it was a very interesting discussion >
Under sustainability risks there is not only environmental and social towards
natural resources, but also geopolitical risks. It just so happens that certain
scarce resources are situated in certain parts of the world, the Congo being
a good example, where climate risks may exacerbate the already existing
environmental, social and geopolitical risks of resource scarcity and access.
When you talk about climate you will have to expand the view of the supply
chain to the entire value chain, because climate will have significant impact
on the ecosystem the customer finds himself in. That will bring with it its
own constraints, towards the usability of the product, the ability to deal with
refuse, the shortening of companies supplies chains and what the social
effects will be to move towards near-sourcing.
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[A.9] (35m30s) Climate Sustianability: It would be good to separate
climate risks from sustainability risks to see where the two overlap. The
assumption I base my work on is that climate change will only exacerbate
the sustainability risks, inclusive of environmental, social and geopolitical
risks. What are those? What are some of the metrics? How can one
minimize those as longer term risks, because I think time will only mean
worse impact?
Design / value-chain: I think it is short-sighted to only think about supply
chains, because if you dont expand to the value chain you miss the
customer use that drives the supply chain. The assumption from
environmental and sustainability concerns is that one needs to design the
products differently with significant positive ramifications for the supply
chain itself.
Future-proofing: We are often talking about future-proofing of supply
chains. We first do an analysis of what are the current components of the
supply chain and obviously your suppliers. Any sole supplier is critical and
need to be looked at. One way would be to put clauses in your procurement
contract with them, for example that sole suppliers themselves build
redundancy outside their geographic locale as a prerequisite to do business
with them.
Questionnaire respondents: Sourcing/procurement professionals, next to
the risk managers and supply chain managers.
Other comments:
Seniority think / Gender differences / Geographic location
Organizational culture: Siloed vs. inter-functional / Flat vs. hierarchy /
Geographical culture -> where you are from vs. where your organization is
from.
Note of interviewer: Would not mind to hear more on how EY makes the link
between climate change, sustainability and pharmaceutical supply chains as
was discussed, given my focus on these quality standards, quality control
and cold chains in post-emergency transitional or developmental settings.
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Interview 5: Peter Murray
Time of interview at interviewers location: 8:00
Time of interview at interviewees location: 20:00
Date: 28 October 2013
Place: online Skype - done from Phnom Penh, Cambodia
Interviewer: Dennis Bours
Interviewee: Peter Murray
Gender interviewee: Male
Position of interviewee: Managing Director Sustainable Value Chain
Solutions at Supply Chain Insights Philadelphia, United States.
Answers
[A.1-1] (7m06s) Yes.
[A.1-2] For example the Icelandic volcano eruption, though that was not a
climate change or extreme weather event. It was a natural occurrence
event and a very good illustration on what an extreme natural event can
mean when it comes to the disruption of global supply chains to natural
events.
The Icelandic volcano is a good example of the vulnerability of global supply
chains, as are the Thailand floods and the Japanese tsunami and resulting
nuclear events.
[A.2] (8m39s) One direct example of the impact of extreme weather events
on production and distribution facilities in low lying areas is of Dupont when
hurricane Katrina wiped out one of Duponts facilities for the production of
titanium dioxide in the gulf. Not only was Dupont affected, but many, many
companies and the built infrastructure in that low lying coastal area.
[A.3-1] (9m49s) cargo loss
[A.3-2] Id say that in the total amount of trade that is moving around the
world it is relatively small, but significant. Every cargo vessel that has
crossed the Pacific or the Atlantic has incidents of loosing containers due to
storms. They either get blown off by the storms or cut by crews to maintain
the stability of the ship, but that is a pretty regular occurrence and as the
weather seems to get rougher it certainly adds to that. Ocean-going
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container ships are essentially not weather-proof and extreme weather
events are going to increase the losses in the shipment of containers. The
use of super-max ships, being bigger and bigger container ships, lowers the
cost of transport, but also increases the risk when they end up in extreme
weather.
Weather events are either typically going to impact either coastal areas or
have an impact on the water. If you look at the amount of global trade over
the world and the impact of extreme weather events, it can probably be
concluded that youre seeing an increase of trade being affected.
[A.4-1] (12m53s) No, more subjective.
[A.4-2] I think its more of a subjective matter than objective on a scale like
that. You really need to be able to look at the possible value of risk events
to be objective about it
Only hindsight is going to give you a correct value. There is some good
work coming out of MIT [Massachusetts Institute of Technology] by supply
chain professor Mr. David Simchi-Levi - He is one of the top supply chain
and network logistics professors in the world has been doing more on risk
in the last couple of years [Note of Interviewer: Main focus on modeling
with a link to sourcing, though the main author of his risk-related articles is
often Xin Chen, Department of Industrial and Enterprise Systems
Engineering - University of Illinois, who I already identified as risk thinker].
Josey Sheffey is a colleague of David Simchi-Levi, who did quite a bit on
resilience in recent years. Note of interviewer: could not find any
information on him. Ask Peter!
The way David approaches it is by looking at the supply chain network,
including the supplier-base. They do a series of analyses that look at
whether suppliers and/or facilities are in risk-prone areas.
When looking at US agricultural regions where they had 50-year floods
reoccurring in a span or 10 or 15 years, you got measurable events and
David created an index based on risks that you can use to geographically
measure the risk potential of your supplier-base. Then you can do more
specific analysis from there.
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[A.5-1] (16m48s) Value of goods lost
Value of damage to facilities exposed
Redundancy cost
Financial loss of productive assets
Flexibility cost
You can quantify it by looking at weather patterns historically
Ill give you an example: Were working on a biofuel supply chain here in
the US Midwest, using non-food biomass. One of the things we had to do to
estimate the inventory was to actually do a study of the weather going back
50 years to try to establish patterns for how often you would have
anomalies that could either create extreme drought or extremely wet
conditions. Both of which would impact the amount of biomass you would
have available and thus influence the amount of inventory you would need
and we were able to quantify what that might look like.
[Note of interviewer: Peter is talking about quantifying the probability of
risk events occurring here, not the quantification of consequences directly.
Though it is interesting to see that occurrence data does also influence
consequences]
[A.5-2] You might be able to estimate the loss you might experience in case
of extreme weather events occurring. The focus is on the usable amount of
goods left and you can certainly turn that into a monetary value.
You could come up with a value of the loss and also the additional
redundancy cost.
In my experience the way you look at resilience and risk, there are three
things you can do about risk. You can obviously try to insure against it,
which has a monetary cost. You can create redundancy and that is either
more inventory, additional facilities or some way to compensate for loss in
productive assets, which has a cost element. The third way is to increase
the flexibility you have in your supply chain, which means you have
something as simple as alternative suppliers or perhaps production capacity
shifted from one facility to another; not to duplicate facilities, but to have
the possibility to move production to other places. Flexibility cost.
Risk management cost: insurance cost / redundancy cost / flexibility cost.
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You always need to monetize the risk management cost and risk
consequences for a business to make decisions about it.
[A.6-1] (21m12s) Yes, it should be.
[A.6-2] It should be part of the risk analysis of any supply chain. Supply
chain risk management is becoming a more significant activity. In the past
that included things like potential price changes, potential for loosing
facilities or suppliers, etc. It makes sense to add climate-based and for
example extreme weather risks to those same type of calculations. Though
it might be smaller and you might look at it in a different way, there is
already an existing and developing framework on supply chain risks.
[A.7-1] (23m21s) Precipitation forecasts could be a risk indicator.
Temperature forecasts could be another one.
Weather index
[A.7-2] Forecasts or projections of temperature. Both precipitation and
temperature have short term as well as long term elements. On top of that
you have seasonal elements that might become more pronounced.
I was working in Saudi Arabia last year on pharmaceutical supply chains
and most medication needs to be kept at an ambient temperature or colder,
and Saudi Arabia is definitely not that. One of the challenges for them is to
have a seasonal forecast to know the extent to which they need to control
temperature within their pharmaceutical supply chains. Having a weather
index can help you plan for that. Im picking the example of Saudi Arabia
because it has extreme heat, but you can apply that need for reliable
weather forecasting to almost anywhere regarding heating and/or cooling
cost which are big components of many supply chains.
[A.8-1] (27m15s) Take into account in existing categories
[A.8-2] I think personally that climate risk indicators should be associated
with particular parts of the supply chain, break it down to processes at
different levels. And you can disaggregate and reaggregate information up
and down the chain and levels you can do that as such horizontally as well
as vertically.
If you associate risks with those particular elements its easier to be specific
about where you need to address the risk through either insurance,
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redundancy or flexibility. It allows you to reaggregate to get a whole
systems view and if youre not able to do the exercise on activity level you
can look at a broader level and disaggregate into supply chain processes
and activities.
You need to look at it by supply chain processes and nodes.
I think having separate climate change risk indicators in one category that
is kind of to the side, makes it less impactful. Ill give you an example; If
you look at the energy intensity, carbon intensity or water intensity of a
supply chain including your suppliers you can aggregate that down to a
unit of output, and that is becoming a pretty effective measure tool. If you
would separate that measure out as a stand-alone then it would become
less effective in doing something about it and it would be less effective in
monitoring changes in processes and nodes over time.
[A.9] (33m00s) I would look towards ocean transport insurers, like Lloyds
and SwissRE, and see how they measure risk. Their job is to measure risks,
because they are essentially being paid to cover that risk and thats
something I have not yet seen in research.
[Note of interviewer: The fact that it has not been part of research also
comes down to the risk measurement being an insurers secret recipe. But
it should certainly be mentioned! Is there historical information on risk
insurance? That might be interesting]
Certain well-defined government-sponsored agricultural insurance
programmes are public information and there may be a way to access that.
Online questionnaire:
Target group: professionals: supply chain / risk management /
sustainability officers as separate position / financial management
financial decision-makers.
Seniority would be important. But also decision-making capacity. How to
measure the latter?!
The main audience is broadly the investment community around the world,
encouraging companies to measure the carbon in their supply chain /
supply-base.
Have a look at the APICS annual sustainability survey.
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Interview 6: Ira Feldman
Time of interview at interviewers location: 20:23
Time of interview at interviewees location: 8:23
Date: 5 November 2013
Place: online - Skype - done from Bangkok, Thailand
Interviewer: Dennis Bours
Interviewee: Ira Feldman
Gender interviewee: Male
Position of interviewee: President & Senior Counsel with Greentrack
Strategies United States.
Answers
[Introduction Two schools of thought on sustainability] (File 1, 3m35s)
I dont see myself as a supply chain expert per-s but what I can provide is
a perspective on the varying ways that professionals and practitioners
frame climate change and risk management issues, and link them to two
schools of thought on sustainability in the business world.
It is difficult to rely upon the result of surveys among business leaders
regarding sustainability issues because there are two different schools of
thought as of what sustainability means in the business context and they
are not mutually exclusive. When Im talking about these things I always
draw a distinction between the two schools of thought; the first one being
sustainability as in 3BL, as in balancing or integration of environmental
protection, economic development and social justice, versus the second one
being the dictionary definition of sustainability as long lasting or enduring,
thus focusing on business continuity planning and future proofing
organizations - Which is the school of thought taken by most people in the
business world in the United States. The latter has nothing to do with 3BL
sustainability considerations.
(File 3, 6m24s) There are very few people who realize the difference in
connotation between two very similar sounding phrases namely sustainable
business practices and the 3BL perspective versus business sustainability,
which has more to do with ensuring the ongoing existence of the
organization without reference to the 3BL approach. Any formulation to
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combine the two has failed, given these lines of thinking come from two
different sources.
There are people who care about supply chain issues for only the 3BL
issues. They are in the minority, but come at it from a CSR perspective as
in ISO 26000.
[Introduction Adaption roles] (File 3, 7m45) Changes in climate affect the
health and well-being of local populations and those are the components of
any multinationals supply chain. In that sense, the sphere of influence
concept becomes very important in future proofing of supply chains.
(File 3, 11m20) There is also the distinction between climate change
adaptation as risk management versus climate change adaptation as
change management. The change management element has great
relevance in where the climate change adaptation issue links up with the
CSR agenda and C-suite decision-making.
[A.1-1] (File 3, 16m43s) Yes, absolutely
[A.1-2] I dont want to be lured into the trap of mistaking a weather event
for a climate change event, but I would say that over an extended period of
time climate change has absolutely impact a range of supply chain issues.
Was any given hurricane or other weather event caused or exacerbated by
climate change? It is perhaps too early to tell, but my own personal opinion
is probably yes.
When you are talking about individual events you are talking about extreme
weather. When you are talking about longer term trends you are talking
about climate change.
[A.2] (File 3, 18m50s) I certainly think that individual extreme weather
events have served as a wake up call to organizations in certain sectors to
begin to pay more attention to the longer term trends.
Most notably is the gradual movement of agricultural belts or zones. In the
popular press the example given are the rumours that grape growers are
buying up land in Northern England and Scandinavia in anticipation of a
changing climate.
(File 3, 20m10s) The only other example Im aware of are storm surges,
like weve seen with super-storm Sandy, most notably impacting the utilities
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and transport sectors. Thats one example causing both individuals and
companies to pay closer attention
[A.3] (File 3, 22m38s) (Note from interviewer: mainly focusing on risks, not
on risk consequences, which is touched upon indirectly)
A lot of companies have realized that it is riskier to be sole-sourcing a
particular component, given how much more vulnerable different regions
appear to be. And there is a recognition that there is no way to climate
proof any one place with certainty, so the trend towards sole-sourcing and
just-in-time delivery of components has made organizations begin to
rethink how vulnerable they are.
[A.4] (File 3, 25m20s) Yes, but only to compare specific risk consequences
I think one needs to be careful to compare apples, oranges and bananas.
That kind of scale would be useful when looking at a particular risk
consequence.
From my experience in environmental management systems there is no
problem using priotization or ranking systems, but you need to be careful to
for example compare the risk consequence of a physical asset to a risk
consequence to employee safety. They are both important but not directly
comparable.
[A.5] (File 3, 28m43s) Financial quantification
metrics on response effectiveness
metrics on responsiveness of event governance systems
On the top of my head I dont have an immediate reaction to that Dennis.
There will be those who do it not just in a dollars and cents approach i.e.
financial quantification but also in a short-term mindset. The opportunity
presented here by this challenge is to install a sustainability or a 3BL lens
into the organizations decision-making process. What might initially be
viewed as not viable on dollars and cents, if its looked at in a 3BL and
longer-term perspective the investment might no longer look so
unreasonable.
My suggestion is to use the opportunity to decide to integrate non-financial
metrics like metrics on response effectiveness or responsiveness of
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governance systems in place - into decision making along with financial
metrics. This brings the corporate sector in line with what the financial
sector is already doing, being the mainstreaming of environmental, social
and governance issues.
[A.6-1] (File 3, 33m50s) Yes, absolutely
[A.6-2] I think that the concern is heightened by recent extreme and more
numerous weather events. That in itself is an indicator towards a longer-
term trend of a changing climate and therefore the corporate entity not only
needs to take it into account in traditional risk management issues, but also
in the corporate culture towards a need for a culture and individual
behaviour change that might be needed as these trends continue.
[A.7] (File 3, 35m30s) I have been greatly influenced by the writings of Bob
Pojasek. Bob Pojasek, teaches at Harvard and is a senior scientist for
consulting firm Exponent Now. http://www.linkedin.com/in/pojasek He has
always been an aficionado of metrics and indicators. He can talk for hours
on the distinction between leading and lagging indicators. The real challenge
will be to come up with leading indicators that can be used by corporate
entities
Also look at ecosystem services and the progress made by corporations in
the ecosystem services construct.
WRI Corporate ecosystem services review tool:
http://www.wri.org/publication/corporate-ecosystem-services-reviewdsgdsg
For supply chain purposes particularly the possibility of constructing leading
indicators based on the proper functioning of relevant ecosystems is where
a lot of action is going to be.
Look at Kunreuther and Paul Kleindorfer on insurances.
[A.8-1] (File 3, 46m17s) Take into account in existing categories
[A.8-2] Ill use the analogy of a menu in a Chinese restaurant; as you look
up and down the menu, in the margins next to 15 to 20 % of the available
menu options you will see a marking like a little red hot chili pepper those
are the very spicy dishes, beware!
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I think it would not be useful to have a separate climate category, but it
would be useful to indicate which metrics or indicators are climate change
sensitive.
This would then imply: Be careful in using these metrics, because you may
no longer be able to rely on historical data!. That in itself becomes a
categorization of metrics and indicators where it is not safe to rely on
historical data because of climate change issues or different measuring
systems due to technological advances.
The reason that all ecologists know that they cant rely on historical data
anymore because of the effect of climate change boils down the notion that
stationarity is dead.
[A.9] (File 3, 49m44s) (Note of interviewer: Discussed during introduction)
Interview 7: Peter Jones
Time of interview at interviewers location: 16:42
Time of interview at interviewees location: 10:42
Date: 6 November 2013
Place: online - Skype - done from Bangkok, Thailand
Interviewer: Dennis Bours
Interviewee: Peter Jones
Gender interviewee: Male
Position of interviewee: Managing Director, Logistics Learning Alliance Ltd
Leicester, United Kingdom
Answers
[A.1-1] (9m55s) Yes, extreme weather events.
[A.1-2] But it is hard to say whether there has been a change in the risk in
the last two to three years. If your basic assumption is that there has been
an increase in the number of climatic events then Im not so sure on the
science. But yes, any climatic event will have an impact on supply chains,
particularly in an era in which we are moving towards leaner supply chains
with less inventory held in different points within the supply chain. This
does increase the risk.
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The scientific panels are keen on the idea that the climate will change over
time and that climate risk events will occur more frequently, but were not
entirely clear yet in what way it will change. We will need to take this into
account when planning for the long term, but a lot of supply chains are not
planned for the long term and the focus in these will mainly be on short
term extreme weather events.
[A.2-1] (13m20s) Flooding in Bangladesh. Pakistan earthquakes
[A.2-2] An example in the long term would be a country like Bangladesh,
which is very heavily involved in the production of clothing and garments for
western markets and the long term threats to that supply chain are quite
evident with rising sea levels posing a tremendous risks in regards to the
level of flooding within that country. In terms of the long term there are
real risks for many producers in that.
In the same market this also applies to Pakistan as a huge producer of
clothing and textiles, though with a different risk; being prone to
earthquakes severe risk consequences.
[A.3-1] (15m20s) time lost
money lost
cost increase
trust breakdown
[A.3-2] The short term effect of an extreme weather event is the supply
chain being disrupted to the extent that deliveries are not made on time or
may not be delivered at all. That creates a breakdown in trust between the
supplier and his customer. And one of the key factors in building any supply
chain is building trust between the organizations involved.
Increase in cost is another negative consequence, because you have to go
to an alternative source of supply or increased cost due to time delays.
If you take the three basic supply chain criteria, being cost, quality and
time, you see that climate risk events immediately can affect two of those
factors.
[A.4-1] (17m43s) Yes
Is it sufficient to have a 5-point scale? The answer is probably yes.
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[A.4-2] I dont think you want to make it overly complex.
In a more mature, established supply chain you would want to focus on the
existing locations and then compare the various risk events, environmental
risk factors for each location in that chain.
If you would be developing a new supply chain with various options in terms
of where you go for your sources of supply then you would want to look at
the risk events and compare between possible locations. You would not only
compare the physical attributes of the supply chain, which is what the SCOR
model would give you, but what the SCOR model probably doesnt give you
is the risk factors involved.
[A.5] (21m45s) Cost
The only way would be a comparative analysis of the expected impact. Im
not aware of any models that actually do that sort of comparison.
I dont know if youll every get to a very precise figure, given its only based
on a projection. Its a probability model whatever way you do it and
therefore you will only get an indication at best.
Refining it for specific geographic areas and specific sources of supply might
be difficult and it also depends on the credibility of the assumptions made
when refining the quantification of risk consequences.
The credibility of assumptions made can only be validated over time. So in
the short term you will work with more general figures and perhaps less
assumptions, a bit more vagueness about the indicator model. In the longer
term when you are building in assumptions to get to more precise metrics
then these assumptions will have to be tested over time.
The more evidence you get over time will validate or disprove assumptions
and you will be able to refine your model and get to more precise indicators
and measurement of your climate risk consequences, i.e. a closer estimate
of what is expected to be the real cost consequence of a climate risk event
happening.
[A.6-1] (27m25s) Yes
[A.6-2] I dont know whether it is a growing concern, it should certainly be
a concern.
As far as growing in the fact that people are perhaps becoming more aware
of the need to plan for them than has been the case in the past.
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I think people have worked on the assumption before that the supply chain
they set up was relatively robust and they havent taken into account the
climate risk factors. I think there is perhaps growing awareness that risk
management in terms of the supply chain needs to be taken into account,
especially with lean and just-in-time supply chains not having large stock of
inventories that would perhaps enable coping to some extent with some
climate risk events happening.
[A.7-1] (30m00s) Temperature increase
Sea level rise
changes in precipitation
[A.7-2] Within climate change the increase in temperature is particularly of
concern in the southern hemisphere, given emerging economies in Sub
Saharan Africa and low lying literals all around the world seem to be most
affected.
Related to that the increased ice melt that can have a devastating effect on
sea level rise and global ocean currents, which affect all of our weather
patterns. We are talking in that sense about quite major changes and quite
severe risks to supply chains.
I dont think you could rule out any part of the world not being affected by
that.
On the mega scale rise in temperature is the really critical indicator towards
a long term climate effect, impacting a lot of emerging economies.
Just looking at how much is produced by emerging economies for the major
markets in the US and Western Europe that could have quite a major
impact.
One of the things we have seen in recent years is a change in precipitation
levels, again particularly affecting the southern hemisphere where they
have gotten quite dry weather with rainfall levels having dropped off in
recent years. Precipitation levels could as such be a good indicator as well.
[A.8-1] (36m44s) Take into account in existing categories
[A.8-2] I think you have to look at it in two ways; one is looking at the risks
in the internal supply chain, within your organization, and the other is
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looking at the risks to the external supply chain, both upstream and
downstream.
I would not separate climate risk indicators into their own specific risk
category, apart from the other supply chain risk metrics you put in place.
You need to build them into your total supply chain risk metric model. Your
climatic and environmental risk analysis and risk indicators need to be built
into the supply chain risk model from the source of your raw materials up to
the end customer.
If you are closer to the supply side youd probably more concerned on what
happens downstream, what will stop you from delivering to your customer.
If you would take the standard production company, sitting quite central in
the supply chain, then they are going to be equally concerned downstream
as well as upstream when it comes to climate risk management.
I dont differentiate between supply chains and value chains; in the SCOR
model re-use, after-sales service, etc. also relate to organizations supply
chains if that is part of their service package towards their customer.
[A.9] (42m52s) Comment and discussion on getting questions in advance.
Comment and discussion on assumptions made in the research!
Interview 8: Gyngyi Kovcs
Time of interview at interviewers location: 16m55s
Time of interview at interviewees location: 11m55s
Date: 7 November 2013
Place: online - Skype - done from Bangkok, Thailand
Interviewer: Dennis Bours
Interviewee: Gyngyi Kovcs
Gender interviewee: Female
Position of interviewee: Erkko Professor in Humanitarian Logistics at Hanken
University Helsinki, Finland, and Director of the Humanitarian Logistics
and Supply Chain Research Institute (HUMLOG Institute).
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Answers
[A.1-1] (3m55s) Yes.
[A.1-2] Humanitarian supply chains generally deal with these issues as
raison dtre and they really have to adapt to any changes in their
environment. If climate change has an impact on weather patters, or the
impact on certain disasters, then the humanitarian supply chain also needs
to adjust to that and preparedness has to account for those types of
impacts.
Now if I think of the commercial supply chain then the overall answer would
be yes. They have been impacted; there have been a number of quite
extreme, larger than predicted, floods. Due to climate change these floods
deviate from the previous norms, regarding their size and predictability.
Some of these floods have for example had quite a severe impact on
particular companies and as companies are linked together in a supply chain
that has an impact further downstream in the supply chain as well.
Climate change is predicted to impact on two particular weather events;
one is floods and the other one is severe storms and their increase
magnitude. In Finland we have also seen an increase in preparedness for
example in the energy supply chain, where there are quite some
endeavours to for example put electricity lines in the ground. Another
example is the forestry supply chain.
[Note of interviewer: The answer is yes for both humanitarian and
commercial supply chains, given the question is whether they have been
impacted, not whether one is better prepared than the other. Though good
discussion to add to perhaps learning lessons for humanitarian supply
chains]
[A.2] (6m42s) The Thailand floods and Japanese tsunami and how that
impacted generally on the electronics supply chain and how that impacted
the pricing of electronic products.
[A.3-1] (7m32s) lack of materials,
delays,
no service provision all together,
reputational consequences
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[A.3-2] The extent to which they have been impacted depends a lot on their
preparedness, their current state of resilience and how the supply chain has
been set up. From my experience the very lean supply chains with very
little to no alternatives in terms of different suppliers, places of sourcing,
and so forth are typically impacted harsher by climate risk events. Because
any type of disruption quickly impacts them much worse than others.
The impact could be anything from disrupted supply, which could factor
down to not being able to deliver at all assembly lines coming to a stand
still resulting in reputational consequences. I guess supply risk is probably
the hardest issue.
[A.4-1] (9m08s) No, not necessarily
[A.4-2] Of course over a large sample you would get some sort of
consensus with a scale like that. The problem would perhaps be bigger if
comparing various types of risks, but even objectively comparing one type
of risk between locations can be difficult with such scales. For example
within the EU there has been an endeavour to classify particular
meteorological hazards in these types of risk scales and it has been
extremely difficult to come to any kind of agreement on them because
particular regions are exposed to certain hazards more than others and they
then perceive those hazards very differently.
Any kind of scale like that is a perception scale and risk perceptions have a
lot to do with cultural differences, the history of the respondent and his
exposure to particular risks over time, which could result in complacency.
When one person would do the scaling for various locations it might make
the scales more comparable, but not necessarily more accurate.
[A.5-1] (12m00s) Delay (time),
Lead time variation (time),
Unpredictability of lead time variation (time)
Cost of switching supplier
Cost of building up supplier
Loss of life
Labor standards
Employee safety
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[A.5-2] From a supply chain perspective there are KPI I could think of and
one is of course delay. But typically delay in a supply chain, being within a
range that is covered by safety stocks or alternative suppliers, is less of an
issue if you know it early enough. The variation of lead times is the one that
causes more havoc in a supply chain. Again, if any kind of event triggers
some sort of unpredictability or lack of probability of lead time, that would
have an impact on the supply chain.
Whatever your unit of comparison will be is something you need to agree
on. Lead time variations can always be converted into dollars if you would
want to.
Another issue that comes to mind would be if a supplier completely seizes
to exist, resulting in the cost of switching suppliers or building up the
supplier again.
If the supply chain has the aim of community involvement, like is the case
in some agri-food supply chains like coffee or coco, then the consequences
related to the loss of such involvement due to a climate risk event would be
hard to calculate.
There are other factors that impact the supply chain that cannot be
calculated into financial figures. For example the current debate in Sweden
on textile supply chains labour standards and child labour, which has a big
impact but cannot be calculated into financial figures. This is related to the
supply chain strategy and if the strategy is to be an ethical supply chain or
fair-trade supply chain, then labour standards or loss of life is at the core of
such a supply chain.
CSR is a bit of a tricky one; in the northern part of Europe CSR is seen as
an accountability issue, while in the southern part its seen as a PR issue.
[A.6-1] (19m20s) Yes.
[A.6-2] As long as climate change has a certain impact, on a supply chain,
locations, facilities, choice of suppliers and so forth it should be taken into
consideration.
From my personal perspective I would say there have definitely been more
extreme weather events over the past ten years, but ten years is not really
a representable sample from a climate science perspective.
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It is not necessarily only the number and intensity of risk events increasing,
but also the risk consequence. Leaner supply chains, urbanization,
population growth, a changing social fabric and environmental degradation
all increase the consequences of a risk event, the effect it will have.
[A.7-1] (25m14s) weather variation
extreme precipitation
Temperature variations
wind variations
[A.7-2] These are multi-dimensional indicators, typically ratios that evolve
over time and you would really need to see the patterns and evolution.
Various types of weather will impact different elements within your supply
chain and the consequence will be very much industry dependent, so it will
take a good number of experts and quite a significant amount of time to
come up with any of such indicators for any specific supply chain.
If you would be looking at an agricultural supply chain pretty much any type
of weather variation from the norm will have an impact one way or the
other.
If you think if manufacturing industries, floods would impact, storms taking
down electricity lines, anything that interrupts the energy supply will have
an impact precipitation, temperature and wind variation, depending on
the type of energy produced.
[A.8-1] (30m04s) Take into account in existing categories
[A.8-2] Usually singling out any kind of category might lead to oversight of
it.
It usually makes more sense to integrate them into existing categories, into
each one of them where they have an impact, because they then become
an integral part of risk management in a supply chain.
If its a separate category that no one understands and no one will actually
react on it. In the case of sustainability you see a Chief Sustainability Officer
and no one really understands what the person is doing, while sustainability
should become an integral part of the organization.
The importance of including them either upstream or downstream really
depends on where you are situated within the supply chain. If your
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company is the final assembly then anything upstream will have an impact.
If your organization and supply chain operate globally, or you are operating
in locations often impacted, then such organizational factors become more
important than the focus on either upstream or downstream.
[A.9] (34m15s) Very interesting to read. Interesting that in a way you write
more about general risk management than a focus on humanitarian supply
chains. This is one of the types of reviews our journal might be interested
in. To be discussed!
Have a look at: ASEAN joint supply chain disruption plans.
Talked about:
- HUMLOG has a project on climate risks and how it factors into
humanitarian logistics.
- Shortly talked about corporate-humanitarian collaboration, especially in
first response with local companies. They might not be able to carry on
response for a long time though, given their stocks run out.
Questionnaire: include suggested KPI and see how people react!
Interview 9: Colin Airdrie
Time of interview at interviewers location: 14:16
Time of interview at interviewees location: 14:16
Date: 12 November 2013
Place: online Skype.
Interviewer: Dennis Bours
Interviewee: Colin Airdrie
Gender interviewee: Male
Position of interviewee: Managing Director of LBA (Logistics Bureau Asia)
Consulting Ltd. Bangkok, Thailand.
Answers
[A.1-1] (5m55s) Yes, extreme weather events
[A.1-2] Im not convinced about the whole influence of human impacts on
climate change, however I think supply chains have been impacted by
extreme weather events. But whether these extreme weather events are
due to human influenced climate change is too early to judge.
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I accept that the climate is changing though Im not sure whether it is
mainly due to human factors as being discussed or a natural cycle. I tend to
keep a short-term view on this and focus on extreme weather events, given
that the climate change discussion makes no difference to the need to risk
manage the increase in extreme weather events and their impact on supply
chains.
The big climate event here in Thailand were the Thailand floods in 2011,
though a lot of the risk consequences were due to bad water management
rather than primarily climate risk sources.
[Note of interviewer: (10m00s) Good side-discussion on poor development
of supply chains in general]
I am very conscious that I might come across as very negative about this
but in my work in the last 17 years - particularly in Southeast Asia and
China - I have seen supply chains that are incredibly badly developed, even
with some of the large multinational manufacturers in-country. Where you
got supply chain management - and good management examples are
difficult to find that looks at transport as a commodity in which you go for
the cheapest option, are they going to worry about climate change or
extreme weather when they dont care about their sheer bad management
on a daily basis?
I think that what youre looking at is very credible and it has an application
when youre talking about companies that have been very supply chain
aware already for some time. But Im not sure to what extent the average
supply chain allows you to be so robust.
Im not talking about small local companies with local supply chains, but
about big international companies with locally managed, locally owned in-
country supply chains. Their supply chain management is just awful. How
can they implement this when they barely manage to decently plan their
transport or manage their warehouses?
[A.2-1] (14m20s) Thailand floods
Southern Thailand monsoon impacting infrastructure towards the peninsula
and Malaysia
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[A.2-2] Almost every year the roads down to Southern Thailand get hit by
the monsoon. That does not only impact the supply chain to Southern
Thailand, but also the cross-border traffic both road and rail that goes
straight into Malaysia and Singapore and related international seaports.
[A.3-1] (15m55s) termination of operations
cost of substitution / alternatives
delay of deliveries
[A.3-2] My main experience is with the Thailand floods, which completely
stopped operations in modern trade retailing of big companies. No one had
really done business continuity planning they are all doing it now The
thing was; The place selected for their distribution centres, Wang Noi, was
the ideal hub in terms of transportation and distribution both nationally and
into Bangkok is in the delta of the Chao Praya river and in a floodplain. The
area does flood and so the industrial estates up there are designed with big
walls around them and pumping stations, but not designed for a flood that
big. They might well have been designed to be able to cope with the
climate, but they were not designed to cope with inefficient water
management at the dams.
Tescos distribution centres in Wang Noi were flooded so they rented the
Bitec exhibition centre in town to use it as distribution centre. I talked to
the country manager of Linfox, an Australian supply chaining company
focusing on Asia, and he told that even when the floods subsided and
warehouses were dry the journeys would still take three times longer due to
some roads still being partially flooded.
I think that since then there has been a big move by companies to focus on
business continuity management and look for alternative sites.
[A.4-1] (21m45s) Yes
[A.4-2] Taking the example of flooding again, streets get flooded in
Bangkok with a big rain but it also drains quickly. It happens several times
a year during the rainy season, but has little impact. On the other end of
the scale you have big floods, also water where it shouldnt be, but you
might in another location get stranded for months. When picking locations
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for distribution centres, doing a network analysis and having a risk matrix
on flooding risks, then that helps to make decisions.
I had a client whose business was badly impacted by the floods. They were
looking at splitting their distribution centre, but it still needed to be close to
Bangkok due to 70% of their business being in Bangkok. Apart from
building or renting a second distribution centre they would have the extra
cost inventory of a same range of products and extra transport, which
resulted in 1.4 to 1.7x greater cost for inventory holding. The question is
whether this extra cost towards contingency planning is justified, or you
just live with the cost of a massive flood every so often.
The reason that the insurance industry is only taking off now in Asia is
because of the thought in Asian cultures that if you insure for or prepare for
some risk event you are inviting it to happen. Were not going to spend
money on that, because it invites faith that would make it happen.
[A.5-1] (29m05s) Cost of termination of operations
Termination of operations (time)
Cost of substitution / alternatives
Delay of deliveries
Cost of reduction in customer base
[A.5-2] We are thinking here about how extreme weather events impact
your supply chain. It could be that the factories, distribution centres and
logistics are fine, but the customer base is affected by a climate risk event.
So it wont have a direct impact on your own infrastructure or inventory,
but it impacts your sales. The customer base is part of your supply chain
but we often only think about adverse conditions impacting the
infrastructure of the supply chain. It might be that thats fine, but it cant
reach the customer.
[A.6] (31m02s) Yes
[A.6-2] Yes, but only because they have been of no concern, because they
have been neglected up to the last Thailand floods. My concern with Asia is
that such events could have been avoided and people need to take note of
that. Land prices close to the highway to the South are now going up,
because the land is outside of the floodplains of the big rivers and it
Page 206
normally doesnt get flooded. The companies are willing to accept the extra
transportation cost.
[A.7-1] (33m22s) Floodplain risk rating
Precipitation on micro-climate level
Geologic maps (added at end 57m41s)
[A.7-2] What is the risk of flooding in certain areas? Thats not a new
science. Mississippi areas flood all the time with a certain degree of risk
related to specific areas. That would also need to be applied to Asia.
In earlier flooded areas you see the markers or where and how often floods
came to certain levels. Its based on history and gives some level of
indication on what you need to think about in the future. Though there isnt
a clear predictive element in it. Even in a tropical climate like Thailand with
fairly regular rainy periods, each year is completely different and there is no
indication whether there will be a big flood or not.
You have to look at these things, humidity and precipitation developments,
on a micro-climate level to get a useful level of accuracy.
[A.8-1] (39m25s) My immediate reaction would be: Specific climate risk
category.
[A.8-2] A separate category for climate risk indicators adds an extra
dimension if somebody would wish to take them into account. All the other
risks can be managed or influenced, or at least to some extent, while you
can have little to no effect over the climate or weather. You have to manage
the consequences more than the risk event itself.
It adds more weight to climate risk indicators if they have their own
category and if you would add them to other categories it submerges them
and you cant see which is the rogue factor in the category.
[Note of interviewer: on taking ownership on risk indicators and good story
about feng shui]
One of the problem in Asian management is that people dont make
decisions, because if you dont make a decision, you dont make a mistaken
and you wont get punished. Dont think managers will take ownership of
risks!
Page 207
I once helped to design a distribution centre with the doors coming out to
the North, given the typhoons came in from the Southeast, from the South
China sea. But because doors on the Northern side were bad feng shui they
placed them on the South side of the building and designed them to
withstand a strong typhoon. Two weeks after opening, in comes a typhoon
stronger than what was calculated for and it blew out the doors. No one had
told that typhoon about feng shui.
These are the influences in Asia that keeps people from making rational
decisions and taking responsibilities.
[A.9] (47m55s) If you watch Top Gear, they all deal with Mercedes,
Maserati and Bugatti Veyrons, but the vast majority of us dont come near
that and are lucky with a Ford Focus. This very good higher level thinking
has to be brought down to operate at the practical level.
Practical recommendations should be towards specific supply chain jobs,
like towards the design of transport infrastructure or warehouses.
One of the reasons Thailands flooding was so bad, and will not get any
better in the future, is that during the build-up of the Thai economy over
time all the natural floodplains of Thai waterways got developed. The
recommendations should perhaps not only talk to the supply chain
community, but to the whole economic community.
The ones currently thinking about business continuity management and
climate risk management are the bigger companies with the most to lose.
I would make your questionnaire a bit less general and come to some
questions that also perhaps pinpoint towards experiences.
Interview 10: Michael Keizer
Time of interview at interviewers location: 11:00
Time of interview at interviewees location: 6:00
Date: 13 November 2013
Place: online Skype.
Interviewer: Dennis Bours
Interviewee: Michael Keizer
Page 208
Gender interviewee: Male
Position of interviewee: Consultant Logistics for Global Health and Aid with,
among others, The Global Fund Melbourne, Australia.
Answers
[A.1-1] (8m46s) Yes, definitely
[A.1-2] That is almost a truism; Of course they have been impacted.
The more interesting question is perhaps whether they have been more
impacted than in the past.
My personal experience there is that they do seem to be more impacted,
especially with flooding, high precipitation levels that impact the supply
chains I have been involved in.
The longer term climate change by definition is slow and the changes are
incremental, which makes it difficult to see them from year to year. If you
would have some kind of baseline measure of 20 years ago then possibly
you could see a difference.
I would not be surprised if there was an impact of climate change on supply
chains, but I personally dont see it because the changes from year to year
are incremental.
[A.2-1] (10m53s) East Congo rainy seasons impacting humanitarian supply
chains
Zimbabwe drought impacting demand
South Australian 12-year drought and bushfires
Australia 2010-2011 floods
[A.2-2] For me it is especially about flooding and precipitation patterns.
As an example; Im looking here in the South of Congo and we have been
lucky in our prepositioning in advance of the rainy season. This year we
were a month early, for various organization-internal reasons, and that was
very lucky for us, because the rainy season started much earlier this year.
As a result the roads were impassable much earlier in the rainy season than
normal. The precipitation also seems to be much more severe than usual.
Another example; I was in Zimbabwe last year where we had a rainy
season that started much later and ended much earlier than normal,
basically resulting in a drought. This resulted in a much longer famine gap
with clear impact on the health status of the people there.
Page 209
Another clear example from my home base, from Australia; The South of
Australia, up to three years ago, suffered through an 12-year drought,
which is the longest drought in written history in Australia. This had very
clear results, like incredible bushfires with quite a number of casualties. And
then suddenly three years ago the drought broke and we ended up with
huge floods in South Australia.
What you see is more extreme precipitation patterns, both ways as in more
flooding as well as more droughts.
[A.3-1] (14m25s) Demand impact
Decreased accessibility
[A.3-2] The impact of various risk events over the past years shows how
resilience plays a role there as well. When you look at the droughts in
Southern Australia lasting for 12 years the theoretical impact would have
been much more severe than the drought in Zimbabwe last year that lasted
only a couple of months. But in the end the impact in Zimbabwe was much
bigger, mainly because the Australian systems, including the logistics
systems, were much more resilient being built to deal with it. Even though
the seriousness of the climate risk event in Australia was much larger than
the one in Zimbabwe.
Added to that, the impact on the demand side was much less in Australia,
because also the demand side was much more resilient in Australia; people
were not immediately pushed to the brink of starvation, like in Zimbabwe.
Yes, in principle the direct impact on supply chains was big for all the events
I described, but how it in the end impacted on the performance of the
supply chains was very different.
[A.4-1] (17m10s) No, subjective
[A.4-2] It is difficult because quite often the assessments are subjective.
What does minor mean? What does severe mean?
First of all, there are no generally accepted scales of risk consequences. And
secondly, it is probably even more subjective than the likelihood of risk
events occurring.
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When you talk about likelihood of risk there are fairly objective scales, but
when you put the likelihood of an event into such a scale it becomes
subjective again. When looking back, the likelihood of something
happening, the likelihood of an early rainy season was about 10%. But does
that mean that the likelihood of future early rainy seasons is 10% as well?
That is where subjectivity comes into play as well.
It is Niels Bohr who said: Prediction is very difficult, especially if it's about
the future (Niels Bohr, Nobel laureate in physics)
Yes, risk consequence scales might help on a conceptual level for
discussions. But whether they really help in practical risk management is an
open question. A lot will depend on the assessors of the risk matrices and
on the level of acceptance of the findings by the audiences for such risk
matrices.
[A.5-1] (20m35s) Increased vulnerability
Increase in disruptions (time)
Increase in supply-demand mismatches
[A.5-2] It is easy to quantify past events, both frequencies and impacts, but
it is a lot more difficult to say anything about future ones. It is all about
different perceptions of both likelihood and impact of risk events, which is
also what the whole political discussion hinges on.
As far as my knowledge goes it is not really possible to make precise,
pinpoint assessment of both future likelihood and impact. However, what
we can do is that we approach it in a more stochastic way and look at
likelihoods of likelihoods of occurrence and consequences. What you then
get is possible intervals with their individual likelihood and depending on the
interpretation of data you will then get a wide range of possible intervals.
Also when you look at risk consequences you will have different
interpretations, different opinions as well, which is where the subjectivity
comes in.
For example, if we talk about an event like the 12-year drought in Southern
Australia, what sort of impact will that have on the supply chains? Well,
there are quite a number of different interpretations on that. The most
pessimistic ones see an increased vulnerability in case we have a similar
Page 211
event again, for instance because fuel supply lines have become more
stretched over the past 10 to 15 years. The most optimistic ones say that
the moving of physical goods has become much less important and we have
become a more service oriented virtual society.
Both likelihood and risk consequences are open to different interpretations
and there is quite a lot of subjectivity coming in there. Thats why I think
those risk matrices are nice to use as basis of a conceptual discussion, but
these are practically very difficult to use.
It is in general very hard to subjectively measure risk consequences. We
can measure the past, but that does not mean that this will be the same in
case of a future risk event maturing.
[A.6-1] (27m30s) Yes
[A.6-2] In theory I would say no, because if you have not taken it into
account in your risk management yet then youre very late. The reality is
that there are still organizations who havent, so yet it will probably have to
be of a growing concern.
I would say that the organizations who have not taken climate risk
consequences into account in their risk management yet are pretty late and
probably too late.
[A.7-1] (29m17s) Changes in precipitation patterns
Changes in wind patterns
Changes in occurrence of extreme winds, typhoons/hurricanes
[A.7-2] There are so many possible indicators and it totally depends on the
context of the company. The indicators for Philips would be very different
from indicators for Amazon to take two organizations. Even within one
sector there can be differences, depending for example on where your
facilities are located.
So yes, there can be many risk indicators but they will totally depend on
your specific situation.
The risk indicators I am looking at in my specific situation are changes in
mid-term (6-months to 2 years) precipitation patterns, which is in my case
the most important one. Another that is very important for many
organizations in the South of Australia is precipitation patterns in the long
term, being 1 to 10 years.
Page 212
A friend of mine works in shipping and one of the things he looks at are
changing wind patters, especially extreme wind events like typhoons and
hurricanes.
I like the examples you gave in your Annex of differences in impact of the
flooding in Thailand for two different hard disk manufacturers. [Note of
interviewer, for coding: The focus of this question was meant more to focus
on indicators to be used to add some level of predictability of climate risk
events to a risk management process]
[A.8-1] (33m20s) No specific climate risk category
[A.8-2] I think they should not have a specific risk category because they
impact on every other risk category.
In general, categorization of a risk helps when you start inventorizing your
risks; it helps with coming up with risks. But as you get further down the
road in your risk management the categorization becomes less important
and less relevant because many risks impact multiple categories.
Climate risks probably impact almost any category of risks you would come
up with, which is why they definitely should not have their own category.
This is probably true for other types of risks as well, for example strikes.
They impact many categories as well and in that sense climate risks are not
really unique.
[A.9] (35m00s) Literature review:
- References difficult to follow at times
- Ibid used wrongly
- Levels: natural environment as denominator of Level 4
- Perhaps cut up compound statements
- Add avoidance as operational risk mitigation strategy
Different in getting out of certain risky operational areas. Add resource link
to it, in which avoidance is mentioned as risk mitigation tactic.
- Risk management definition not the only one! Perhaps look at wider risk
management definitions. Explain why I do take this definition.
- Expansion of research design in progress. Also the element on the
literature review needs more foundation on the academic why behind a
choice for a literature review and its merits.
Page 213
Interview 11: Steve Leon
Time of interview at interviewers location: 22:02
Time of interview at interviewees location: 10:02
Date: 22 November 2013
Place: online - Skype
Interviewer: Dennis Bours
Interviewee: Steve Leon
Gender interviewee: Male
Position of interviewee: Clinical Professor of Supply Chain and Operations
Management, University of Central Florida Orlando, United States
Answers
[A.1-1] (13m32s) Yes
[A.1-2] In a typical supply chain perspective we have multiple tiers or so,
but my perspective in the airline industry focuses on transportation and as
such on a specific tier of companys supply chains.
[A.2-1] (13m45s) Snowstorms shutting down airports in the Northeast of
the United States
Hurricanes
Indonesian tsunami
Japanese tsunami
Thailand floods
[A.2-2] My background is in the airline industry and we routinely get hit by
weather events, such as snow and northeasters, which shuts down airports
in the Northeast of the United States.
Earthquakes on the West coast of the United States [Note of interviewer:
For this research climate change and earthquakes are not seen as inter-
related, given the science on the impact of climate change on earthquakes
is still in its infancy].
Hurricanes will also typically impact the airlines industry.
We had the Tsunami in Indonesia and the Tsunami in Japan and that closed
airports and domestic as well as international flights, both for passengers
and cargo
Page 214
Flooding in Thailand impacted the supply chains of hard disks, computer
equipment worldwide and automobiles in the Asian region
EU carbon emission tax on airlines.
http://ec.europa.eu/clima/policies/transport/aviation/
I think when looking at the longer term climate change we dont know yet
how supply chains will be impacted. But when thinking about the EU tax on
carbon emissions, there was talk by UPS and a few other airlines about
rerouting or changing their network and schedules to accompany these
taxes. What I mean by that is not so much to accommodate, more to be
punitive in their actions and for example planning their flights around the
EU.
There were airlines in the Middle East that were thinking about not flying
into the EU any longer, in protest of these taxes. I think it was China who
threatened to pull out orders from Airbus due to talks about these carbon
emission taxes. I can see some of these treats becoming realistic, come to
fruition.
The International Civil Aviation Organization (ICAO),
http://www.icao.int/Pages/default.aspx from Montreal, Canada, is working
with the UN and EU to collaboratively develop consensus on what is fair to
all. World governments are now working together to have a global
acceptance on a policy that is developed with the consensus of most
governments.
[A.3-1] (19m55s) Lost revenue
Increased cost
Metrics of delivery
% of not on time delivery
[A.3-2] The impact could be measured in lost revenue, maybe some
increased cost. You could measure using metrics of delivery, like % of
not on time delivery due to impact of weather.
I suspect there are financial measures and operational measures. This is
what so forth comes to mind.
[A.4-1] (21m20s) Yes, but not objective. As such, No, not objective
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[Comment of interviewer: So answer on question is No, given the question
asks whether it allows for objective results and comparison]
[A.4-2] Sure. The benefit of a scale as the one you talk about is that in a
practitioners sense it is easy to use. I think consequences is a big factor in
determining the mitigation techniques. But you are asking whether it is an
objective tool, can it be objectively used Well, in a sense not so much,
because what is severe to one is not so severe to another.
I think if you were to categorize the events by an independent party, or a
party on whom we all degree as having some sense of what severe,
moderate and negligible is, then I think you could be objective. But if we
ask individual managers from different companies, from different parts of
the world, then I think what is negligible to one might not be so negligible
to another. I think because of the nature of the business, different regions,
different cultures, and different industries we are in you possibly have to
narrow down such a scale to region and industry to get a slightly more
standardized scale.
For example, in North Dakota we have no problem in getting around with
snow and ice. If you would have the same amount of snow and ice in
Atlanta, the whole city shuts down. In that sense it is more subjective than
objective. But the tool is very useful though. I teach it in class because it is
a great tool to use.
My feeling is that when looking at one event across multiple regions is
probably more subjective than multiple events across the scale, given you
have their relative distance from one another on the scale.
[A.5-1] (25m30s) Overall lost revenue
Lost revenue is certain business segments
% of loss against a certain consumer-base [Note of interviewer: I will see
this as market share related.]
Decline of stock values
Lower return on assets
Effect on inventory turnover
Increase in insurance premiums
Cost of risk mitigation actions
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[A.5-2] Sometimes people include communities in their supply chain. If
youre working in a community then those communities you work and live in
can also be impacted by what happens to a company that is in a supply
chain being impacted. If we look at a supply chain and include the end user,
if were looking at ways to quantify the impact, then you could look at
financial impacts.
When you look at financial impacts you can have an overall grand scale like
overall lost revenue, or you could talk about revenue loss in certain
business segments, or % of loss against a certain consumer-base. You can
go further beyond revenue and cost; which cost is involved? Is it
operational cost or cost we may see through how it affects stock prices.
PWC did a recent study on how disruptions affect the stock prices, and
return on assets decline.
I think it is a tough one. If you can come up with good metrics on how to
measure such consequences that would be really good. You can look at the
metrics the finance industry would use when they evaluate a company, such
as inventory turnover. Insurance would probably be a factor.
Maybe also look at the implementation of risk mitigation programmes. The
cost of hiring experts etc. to implement risk mitigation actions. The
implementation of new policies and legislation, but how do you measure
new legislations in companies Im not so sure yet? Perhaps a cost increase
due to wages and salaries and so forth. If you take people away from the
current job they are in and you take them over to implement new
legislation or risk mitigation actions, maybe their work focus being diverted
would result in cost or reduced sales, or reduced ability to innovate because
people work on other things. [Note of interviewer: I will take these
consequences as cost of mitigation actions]
[A.6-1] (32m45s) Yes.
[A.6-2] I think climate related risks were already a concern, and they were
neglected! I think what happened is that people realized events could occur,
they could be bad, however there wasnt a reason to focus on them until
recently now that companies are being hit harder by climate risk events. No
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one cares until your bottom line is being impacted. And companies now find
that their bottom line is being hit.
It was a concern but it was neglected only because that maybe at that point
in time it was too costly to implement any mitigation techniques, or there
was no need because the company had not experience climate risk events.
But now every conference has something about risk mitigations, about
carbon emissions, about new legislation and taxes towards environmental
factors.
Its so big now you cant ignore it, and if you are ignoring it you will
probably be out as a company.
[A.7-1] (35m56s) Extreme weather trending
Extreme weather trending + adjustment for increase
Hurricane and typhoon build up
[A.7-2] What could we use? If you look at something that would indicate
climate change or extreme weather That is very difficult in that they are
typically rare events. In the Northeast of the United States though, there is
usually a mayor snowstorm, so there is a high probability that one of those
is going to occur. But when is it going to occur? I think what you could do is
to mark trends. One of the figures in your paper shows that; it shows man-
made and natural disasters and how they are increasing. You could narrow
that down to region and track trends. It would give you some idea about
whether they would occur, though the hard part is to predict when they
would occur. Youd certainly need to do some major statistical analysis.
We might need to look outside of our field to get the information we would
need for climate risk prediction. For instance geological maps could be of
use. We might need to look at people who have some expertise with
eartquakes, tsunamis, hurricane prediction and the like.
One good thing of hurricanes is that they need time to build up, so you
know that they are coming. For instance in the United States we have
hurricanes that come up through the Gulf of Mexico and we have hurricanes
that hit the Southeast of the United States. In those instances you know
they are coming and you would want to plan for them; you might want to
build more inland. Or it might mean that if you like to setup in a particular
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area that what you are building needs to be reinforced in a certain way to
withstand the impact of extreme weather.
Going back to my original statement; We might just have to go outside of
our field, because we do not have the expertise to predict these extreme
weather events. We need to talk to scientists and ask them how they
predict, because there must be tools to identify triggers. What do scientists
look at to identify whether a tsunami is coming? And is there a feed, is
there data online that can be tracked?
There is a research institute out of Belgium that provides a database of all
natural disasters. Now that is historical, but it may give some indication on
how that data could be aggregated to more localized data.
Disaster Database: http://www.emdat.be/
To take the example again of hurricanes in the Southeast and coming
through the Gulf of Mexico. They occur frequently, and the come to shore
frequently, and they do so in an area of about a 100 mile span. While you
dont know the pinpointed location of landfall for future storms, when
creating your facilities, planning your nodes, but you know the area in which
they do come to shore. If you are in that area you can be pretty sure youre
going to be hit by something, and on the other hand if you would move out
of that range the likelihood of being hit is much less.
Maybe some of the historical data will lend itself to supplementing other
data.
[A.8-1] (44m50s) Take into account in existing categories
[A.8-2] On one hand, if youre looking at carbon emissions and legislation
and taxes. If youre looking at disruptions due to climate factors No, I
think you should fold it into the existing risk factors to tell you the truth. If
were looking at transportation risk, part of that would be whether your
transportation supplier is going to be able to come through for you. When
looking at your transport suppliers while doing your due diligence, youd be
looking at a whole host of things. Not just their on-time performance, but
their quality, ability to deliver, financial position and you should also look at
their ability to perform under extreme weather conditions.
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I dont think you need to break it out as a separate metric. The climate part
falls into other categories as part of their due diligence as being another risk
factor you have to look at when making decisions about demand
forecasting, transport, etc.
Some companies are coming up with sustainability and climate metrics that
take on their own life, but maybe these companies have a higher CSR vision
that makes these indicators stand out.
Outsourcing as abdication of management responsibilities is old-school. I
think that these days you have to pay attention at what you outsource and
to who you outsource. We teach to look 3 to 4 tiers back in your chain.
Well, if youre a smaller companies and dont have the resources to take
care of something, then maybe you do outsource functional areas and not
pay attention too much.
[A.9] (56m36s) Literature review: Very thorough
Questionnaire: Risk appetite. Where does their risk mitigation action stand
vis--vis their risk appetite.
Also: define the terminology used in the questionnaire.
Interview 12: Sander de Leeuw
Time of interview at interviewers location: 16:00
Time of interview at interviewees location: 10:00
Date: 2 December 2013
Place: online - Skype
Interviewer: Dennis Bours
Interviewee: Sander de Leeuw
Gender interviewee: Male
Position of interviewee: Associate professor of Logistics (Vrije Universiteit
Amsterdam, The Netherlands), Professor of Operations Management (NBS
Nottingham, United Kingdom).
Answers
[A.1-1] (5m43s) Yes
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[A.1-2] Yes, they have been impacted. The question of course is whether it
is more or less than in the past.
My feeling is that we dont know whether supply chains have been impacted
more or less than in the past. I see a lot of people who say it is more, but I
strongly doubt that. The reason for that is that supply chains have become
more international so they become more vulnerable. The fact that there are
more supply chain problems is not due to the fact that the climate is
changing, but rather a consequence from the fact that our supply chains
have changed.
Supply chains being impacted is more an element of the increased
vulnerability of supply chains due to their length. They probably have been
impacted more than in the past due to their increased vulnerability.
[A.2-1] (7m25s) Hurricane Katrina
Japanese Tsunami
Thailand floods
[A.2-2] I think there are a few examples from quite a while ago. 2005 pops
in my mind, hurricane Katrina and its impact on coffee supply chains in the
US. The Japanese Tsunami three years ago had quite a big impact. Though
a tsunami is a natural disaster, not necessarily a climate change or extreme
weather event, followed by a complex or man-made disaster the latter
probably having the biggest impact.
Another one that is perhaps even more extreme and quite well documented
is the flooding in Thailand 2011. A lot of hard-drive manufacturers were
affected to the extent that it took one year for hard disk prices to come
down and stabilize to the price level from before the flooding. The biggest
issue was not increased precipitation, but how it all was managed by the
Thai government. Because the Thai government wanted to protect some
areas, they diverted the flooding through canals and worsened the situation
for the area with the manufacturing of hard-drives. It is perhaps rather
typical that the weather event of extreme precipitation is only one of many
factors developing in a risk event.
[A.3-1] (11m53) Consumer price of product
Delay of product introductions
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[A.3-2] In the Thai flooding case, the consumer price of a product is one
indicator. The second one that happened in Japan after the Tsunami is the
delay of product introductions. Apple actually delayed their iPad, which has
to do with their main supplier I think it was Sharp is being located in
Japan and could not deliver. The primary ones as such are cost and time.
[A.4-1] (13m19s) No.
[A.4-2] No. Just to give you one example; If you look at the earthquake in
Haiti against the earthquake in Chilli. Earthquakes are very unlikely to
happen and their potential impact is either quite sever or critical. However,
the coping capabilities of Chilli were much better than those of Haiti. Other
than that, Haiti was located on a mudslide, while Chilli has a rocky surface.
The vulnerability of Haiti was as such much higher. I dont know if
vulnerability is part of the potential risk impact, but we should definitely
take into account the potential vulnerability.
There is probably a higher level of comparability when comparing various
risk events for one location, given the characteristics of a risk event and
vulnerability are dependent on the location. If you look at earthquakes in
Japan, people are very well prepared for that; buildings are earthquake
resistant. Though dealing with other events in Japan might be a problem.
[A.5-1] (15m30) Consumer price of product
Delay of product introductions
Cost / time of recovery
[A.5-2] What you often see is that there is some sort of number, like the
cost element of the societal impact. Quantifying risk consequences is always
a tough one, given you have to wonder what to take into account and what
not. But I would look at something like the recovery cost / recovery time for
a society. That is something very problematic in the US, where you would
not expect it.
For companies its also a problem, but companies are a bit quicker; if you
cant get your supplies through you find other ways. There is a good
example of Toyota. They had a problem with a supplier making a very
specific part called a p-valve. Their factory burned down, but Toyota was
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able to very quickly engage other suppliers. So the company effect was
rather limited.
Also when you look at the figures of down time for companies like Toyota
and Honda as a result of the Japanese Tsunami that was considerable. But
we actually looked at what the result or the impact of the Japanese Tsunami
was on good flows of DHL. When you looked at their import and export
figures they were hardly affected. They were impacted for two days and two
days after the tsunami hit they were actually back to normal. Somehow
they were very well able to quickly recuperate.
Whereas society will take a long time. Then again, Japanese society is
probably much better prepared for such events than the United States when
you compare the two.
[A.6-1] (18m22s) Yes.
[A.6-2] The reason for that is that supply chains these days are very long
and involve many suppliers. It simply has to do with the fact that we
decided to outsource and offshore many activities over the past 20 years.
And therefore risks are very important.
It doesnt have that much to do with climate Im afraid. It perhaps has to do
with climate risk events being compounding factors on a very much
stretched and thus increasingly vulnerable supply chain.
[A.7-1] (19m56s) Weather forecasting
[A.7-2] I think we need to discriminate between climate change and
weather events. Weather is more the short term. I dont think climate
change is of any interest to companies. Unless youre in the weather
business sorry to be bold.
I think what happened in the US during hurricane Katrina is that Wallmart
had its own unit to forecast what was happening with the storm and these
days its actually possible to forecast the path of a hurricane 5 days in
advance, which enables you to evacuate well in time.
Also here in the Netherlands you can divert your goods flows based on
weather forecasting, e.g. if there would be a big storm coming up were not
going to moor a ship in Rotterdam, but divert it to Hamburg. Five days
gives enough time to do that. Unfortunately in the Netherlands we cant
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evacuate the people because were a bit stuck due to the population
density. Delft University has done some good work in that area.
In the Netherlands we have a system and of calamity warnings and related
governance structure, given we have a particular sensitivity to water
problems. The weather forecasts are being sold to companies as well. That
might be useful for identifying what the impact might be of extreme
weather events on your own activities. Im not saying that companies
should build up their own weather forecasting unit. That is information that
can be bought if its available. But the translation of that into how they
should act is something that they probably should invest in. Wallmart has
done that, and many others Im not aware of probably have done that too.
There is also a task for governments here.
To cut a long story short; I dont think longer term climate change
indicators are relevant to companies, at least not from a supply chain
perspective. The translation of weather information into decisions is what
companies probably should invest in.
I recall one paper on translating weather information in decisions, though
probably not connected to business but about forecasting floods in Taiwan.
[Q.8] (27m06s) Could you come up with risk categories in which climate
risk indicators are, or should be, taken into account? Or do you feel that
climate risk indicators should have their own, or no specific risk category?
[A.8-1] Taken into account in some categories, but extreme events being
singled out.
[A.8-2] I typically use the overview of Sunil Chopra and Sodhi (2004) from
the SLOAN management review, and that has 8 phases. And if I think of it
perhaps it is a bit of a chicken-and-egg problem. You should probably do
both! There is a separate category in that overview for extreme events, but
you will also find that some elements in the other categories, like supplier
risks, are impacted by climate change or at least extreme weather events.
I would single a few things out; extreme events is a separate category that
you can deal with. But for the others - longer term climate change, I would
not.
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From a company perspective you should be able to say what are my
dominant risks on my supply chain?. Lets assume Im transporting my
goods from the Philippines into Europe. You want to look at potential delays,
but I think you can be more concrete. The typhoon season is something
that comes back every year and is something you can actually plan for. You
can be very concrete on the impact this has on your own supply chain; you
focus on whether you are geared up for the typhoon season instead of
looking only at delay risks.
The same is in Africa, where you have a dry season wet season weather
pattern as well. If you have not done your distributions in Chad by June you
have a problem because then the rainy season starts.
You can gear up your supply chain for specific [extreme] events, which is
where the added value is of having some of the elements as a separate risk
category.
[A.9] (38m08s) Literature review; Captures most of the things and most of
the sources that I expected in there were certainly in there.
Literature review:
There is this nice 4 strategies document of Shell; the 4 Ts of risk
management of Shell! [Note of interviewer: Review to see if it should be
included in the literature review!]
Comment on Figure 6: Risk matrix with the 4 colors: Disagree with the
buffering and pooling, how it is located in the matrix.
[Note of interviewer: possibly the figure is an example of a specific risk
event, or of a specific location within a supply chain. Need to verify this and
add it to the figure as a footnote!]
An event on a global scale is very likely to happen. But the same event on
a local level only has a low likelihood
[Note of interviewer: In globally stretched supply chains it is equally true
that the likelihood of occurrence of a climate risk event on a single node is
rather unlikely, but the likelihood of a climate risk event impacting such a
stretched supply chain somewhere, is quite likely].
Questionnaire: Perhaps leave out academics as questionnaire audience.
Page 225
Adding a description of what a risk management system is (?)
Standardized answer types! And questions from past research.
Had a good discussion on risk exposure. Made a change more than
marginally of impact.
Page 226
ANNEX 6: Internet-mediated questionnaire introduction
This questionnaire on climate proofing supply chains supports my thesis
research towards an MSc in International Purchasing and Supply Chain
Management. The full title of the study is: Climate proofing supply
chains: Identification of climate risk indicators to improve the
supply chain risk management process (SCRMP).
The aim of the research is to study climate risk indicators as part of the
Supply Chain Risk Management Process (SCRMP), with the aim to improve
supply chain resilience towards physical climate change and environmental
risk sources (i.e., climate risk sources); this is referred to as climate
proofing. This study will be equally applicable to commercial as well as
humanitarian supply chains.
Dennis Bours, the researcher, has been working in global humanitarian
relief and supply chain management for over a decade. His current
employment focuses on measuring the impacts of programmes that are
designed to address potential adverse effects of climate change. His MSc
study stems from his professional experience and interests, and supports
growing international attention to the possible consequences that climate
change and extreme weather events pose for supply chain operations.
Note that you do not need to be a supply chain or risk management
specialist to fill out this questionnaire!
This questionnaire applies to you if you would be working in any of the
following fields:
Supply chain, logistics operations / management
Procurement, sourcing, or contract management
Organizational risk management / Risk management
Quality assurance / Quality management
Corporate Social Responsibility / Sustainability
Financial management / Financial decision-making
Academic research on any of the above fields
Consultant / advisory function to any of the above fields
Page 227
Time: This questionnaire will take about 15 minutes of your time. It will
start with five questions about the organization you are working for. After
that, there will be six questions on risk management, followed by nine
questions on climate risk events, their impact and risk treatment. The
questionnaire ends with five questions about your work and position.
The results: At the end you are given the option to provide your email
address if you would like to receive a narrative report once the research is
concluded in April 2014. This report will give an overview of the research
results and recommendations on how this could inform your organization's
risk management and supply chain decision-making.
A special note for academics, consultants and advisers:
On the following pages, a number of questions are specifically asking about
'your organization', 'your organization's supply chain and risk management'
and 'your position'.
If you are working, or have worked on academic research or as a consultant
/ advisory function towards an organization with a supply chain that has
been or could be impacted by climate risk events, then think of that
particular organization / supply chain you researched or provided
consultancy services for.
Any questions that specifically refer to 'your organization' or 'your position'
then refer to the organization being part of that one research case,
consultancy service or advisory role!
Click the following button to start the questionnaire:
Page 228
ANNEX 7: Interview-mediated questionnaire
PAGE 1: Four questions about your organization
Q.1. Which of the following best describes the sector in which your
organization operates?
(2 Answer columns, single choice, requires answer)
Private
Public (national and sub-national)
Public (multilateral, inter-governmental, e.g. EU, UN)
Voluntary, Non-profit, Non-governmental
Academic, Research
Q.2. Please select the specific sector best describing your
organizations focus. (In case your organization operates in multiple
sectors, indicate the main sector in which your particular business unit or
department operates)
(Pull down menu of ISIC Rev 4 codes,
376
single choice, answer required)
A - Agriculture, forestry and fishing
B - Mining and quarrying
C - Manufacturing
D - Electricity, gas, steam and air conditioning supply
E - Water supply + sewerage, waste management and remediation
activities
F - Construction
G - Wholesale and retail trade + repair of vehicles
H - Transportation and storage
I - Accommodation and food service activities
J - Information and communication
K - Financial and insurance activities
L - Real estate activities
M - Professional, scientific and technical activities
N - Administrative and support service activities
376
ISIC Rev 4 codes are the International Standard Industrial Classification of All Economic Activities,
Revision 4, as issued by the United Nations Department of Economic and Social Affairs (UNDESA) -
Statistics Division. UNDESA 2008.
Page 229
O - Public administration and defense + compulsory social security
P - Education
Q - Human health and social work activities
R - Arts, entertainment and recreation
S - Other service activities
T - Activities of households as employers + undifferentiated goods- and
services-producing activities of households for own use
U - Activities of extraterritorial organizations and bodies
Q.3. What is the size of the organization in which you work?
(EC SME Standard,
377
2 answer columns, single choice, requires answer)
Micro (1-9 employees)
Small (10-49 employees)
Medium (50- 249 employees)
Large (250-999)
Enterprise (1000 or more)
Q.4. In which country / territory is your organizations headquarter
based?
(Pull down list of countries of the world, single choice, requires answer)
PAGE 2: Risk management in your organization
Q.5. Does your organization apply a risk management system?
(2 Answer columns, single choice, requires answer)
Yes
No
I dont know
377
The SME standard sets the European standard for business sizes. See EC 2005. The three official
business size standards available are the United States, European Union and the Australian
standards on business sizes, for which the European standard was chosen because it formed a
happy medium between the Australian (smaller) and American (bigger) business size standards.
Page 230
Q.6. Does your organization adhere to an accredited risk
management standard? (Like the ISO 31000 risk management standard,
or comparable)
(2 Answer columns, single choice, requires answer)
Yes
No
I dont know
Q.7. Does your organization apply a supply chain risk management
system? (A supply chain is being defined as a network created amongst
different companies for producing, handling and/or distributing a specific
product and/or service)
(1 Answer column, single choice, requires answer, skip logic)
Yes - My organization has a supply chain risks management system as an
integral part of its enterprise risk management system.
Yes - My organization has a supply chain risk management system
separate from its enterprise risk management
No - My organization is involved in supply chain activities, but has no
supply chain specific risk management system
No - My organization does not operate or is not involved in any supply
chain activities
I don't know
Skip logic:
If YES, software goes to next page, page 3.
If NO, BUT HAS SUPPLY CHAIN ACTIVITIES, software goes to page 4.
If NO, NO SUPPLY CHAIN ACTIVITIES or DONT KNOW, software goes to
page 8.
PAGE 3: Four statements on risk management
[Skip logic applies from Q.7.]
Page 231
Q.8. I have the authority to influence company policy on risk
management.
(Horizontal 5-point rating scale, single choice, requires answer)
Strongly disagree
Disagree
Agree nor disagree
Agree
Strongly agree
Q.9. I have the authority to make influential recommendations on
risk management.
(Horizontal 5-point rating scale, single choice, requires answer)
Strongly disagree
Disagree
Agree nor disagree
Agree
Strongly agree
Q.10. I have the authority to make changes to risk indicators in our
organizations risk management processes.
(Horizontal 5-point rating scale, single choice, requires answer)
Strongly disagree
Disagree
Agree nor disagree
Agree
Strongly agree
Q.11. I have the authority to make decisions based on risk reports.
(Horizontal 5-point rating scale, single choice, requires answer)
Strongly disagree
Disagree
Agree nor disagree
Agree
Strongly agree
Page 232
PAGE 4: Climate risk events and supply chains (1/4)
[Skip logic applies from Q.7.]
Q.12. Supply chains in general have been more than marginally
impacted by physical climate change and extreme weather events
(to be called: climate risk events) over the past three years.
(Horizontal 5-point rating scale, single choice, requires answer)
Strongly disagree
Disagree
Agree nor disagree
Agree
Strongly agree
Q.13. Has your organizations supply chain been more than
marginally impacted by climate risk events over the past three
years?
(2 Answer columns, single choice, requires answer)
Yes
No
I dont know
Skip logic:
If YES, software goes to next page, page 5.
If NO, software goes to page 7.
If I DONT KNOW, software goes to page 7.
PAGE 5: Climate risk events and supply chains (2/4)
[Skip logic applies from Q.13.]
Q.14. Please select the main type of climate risk event that most
impacted your organizations supply chain.
(2 Answer columns, single choice, requires answer)
Heat wave
Cold wave
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Blizzard / Snowstorm
Drought
Flooding
Tsunami
Extreme precipitation / Monsoon
Hurricane / Cyclone / Typhoon
Global temperature increase
Global sea-level rise
Q.15. How would you rate the impact of the climate risk event?
(Horizontal 5-point rating scale, single choice, requires answer)
Negligible
Minor
Moderate
Severe
Critical
Do let us know why you have chosen this rating for the impact of the
climate risk event! (Text field option to explain choice)
Q.16. Companies have different levels of risk appetite. How would
you describe the risk event that impacted the supply chain of your
organization, from the perspective of your organizations risk
appetite?
(Horizontal 3-point rating scale, single choice, requires answer)
Acceptable
Tolerable
Unacceptable
PAGE 6: Climate risk events and supply chains (3/4)
Q.17. Which 4 indicators best describe the impact of the climate risk
event? (Select up to 4 indicators)
(2 Answer columns, multiple choice, requires answer min 1, max 4)
COST: Demand, customer-base related cost
COST: Lost profit or lost revenue
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COST: Lost revenue as % of total revenue
COST: Cost of substitution or alternatives / Flexibility cost
COST: Cost of supplier base issues
COST: Value of production / cargo lost
COST: Value of damage to facilities / assets
COST: Loss of market share / decline in stock value
COST: Increase in insurance premiums
TIME: Lead time, schedule consequences, delivery delay
TIME: Time lost during climate risk event
TIME: Time to recover
OTHER: No service provision all together
OTHER: Exacerbation of natural resource shortages
OTHER: Trust, reputational and social consequences
OTHER: Loss of life
OTHER: Employee safety
OTHER: Efficiency of response / responsiveness
Another indicator not mentioned (Please specify): (Text field)
Q.18. What type of risk treatment was put in place to tackle this
type of climate risk event?
(1 Answer column, 2 answers maximum, requires answer)
Do nothing - no actions were put in place
Crisis management after-the-fact
Contingency planning / Business continuity planning
Operational risk adaptation - A process of operationally adapting to such
types of risks
Operational risk pooling - Operational collaboration towards to such types
of risks
Operational risk mitigation - A process of operationally mitigating such
types of risks
Operational risk avoidance - Cancelling activities or outsourcing to not
have to deal with it
Financial risk transfer hedging / mitigation - Any type of risk insurance or
financial action
Page 235
PAGE 7: Climate risk events and supply chains (4/4)
[Skip logic applies from Q.13.]
Q.19. What in your view is the likelihood of your organizations
supply chain getting more than marginally impacted by the
following climate risk events over the coming three years?
(Ranking matrix with horizontal 7-point likelihood rating scale,
378
single
choice per row, requires answer)
Row values:
Heat wave
Cold wave
Blizzard / Snowstorm
Drought
Flooding
Tsunami
Extreme precipitation / Monsoon
Hurricane / Cyclone / Typhoon
Global temperature increase
Global sea-level rise
Column values:
Exceptionally unlikely (<1%)
Very unlikely (<10%)
Unlikely (<33%)
About as likely as not (33 to 66%)
Likely (>66%)
Very likely (>90%)
Virtually certain (>99%)
378
Based on the likelihood standards as used in IPPC 2007a and 2007b.
Page 236
Q.20. Which indicators would you monitor in order to predict the
development of climate risk events possibly impacting your
organizations supply chain? (Select up to 3 indicators)
(2 Answer columns, multiple choice, min 0 - max 3)
Short term temperature changes / forecasts
Long term temperature changes
Changes in precipitation level
Changes in precipitation intensity
Rising sea levels
Changes in water/drought conditions
Increased water scarcity
Floodplain risk rating
Changes in wind patterns
Occurrences of extreme weather events
Weather indexing / Extreme weather trending
Climate insurance cost on capital assets
Another indicator not mentioned (Please specify): (Text field)
PAGE 8: A few questions about you
[Skip logic applies from Q.7.]
Q.21. Are you
(1 Answer column, single choice, requires answer)
Male
Female
Q.22. Are you working in one of the following fields?
(2 Answer columns, single choice, requires answer)
Supply chain, logistics operations / management
Procurement, sourcing or contract management
Organizational risk management / Risk management
Quality assurance / Quality management
Corporate Social Responsibility / Sustainability
Financial management / Financial decision-making
Page 237
Academic focus on any of the above fields
Consultant / advisory function to any of the above fields
Q.23. Two questions on seniority
(Number field, requires answer)
Please enter your number of years of experience in the sector in which
you are currently working:
Please enter your number of years of experience within the field of
expertise in which you are currently working:
Q.24. What would best describe your level of responsibility?
(1 Answer column, single choice, requires answer)
Director-level
Senior manager below director level
Middle manager
Line manager
Employee with limited to no managerial responsibility
Q.25. In which country are you currently working?
(Pull down list of countries of the world, single choice, requires answer)
Q.26. Which country are you originally from?
(Pull down list of countries of the world, single choice, requires answer)
PAGE 9: Receiving the results
Please fill out the following if you would want to receive the
research findings.
Name: (Name field, not required)
Email Address: (Email field, not required)