Resilience Planning for Climate Change Impacts in S&OP Strategies 

Today’s high-powered economy necessitates an uninterrupted supply chain to maintain profitability and meet consumer demand. However, a changing climate threatens even the most well-crafted sales and operations planning (S&OP) strategies. 

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S&OP synchronizes various sales and operations teams to ensure steady production and distribution of goods. By including resilience planning in S&OP strategies, companies can climate-proof themselves from potential disruptions. 

Here is an in-depth look at how climate change has already undermined S&OP strategies and ways businesses can prepare.

The Impact of Climate Change on the Supply Chain

Climate change effects on supply chain operations are nothing new, and analyses suggest they will worsen in the coming years. Already, companies have grappled with food product shortages after extreme weather upended production in targeted regions.

For instance, lobster populations are down 40% in Maine, where ocean temperatures have risen significantly from global warming. The downward trend has hindered lobster availability in stores and restaurants, driven costs upward, and negatively affected lobstermen’s livelihoods. 

Meanwhile, in 2017, Hurricane Maria decimated coconut trees in Puerto Rico and the Dominican Republic, which are of economic value and a vital food source. According to one report, Puerto Rico saw a decline of $19 million in coconut crop sales from 2012 to 2018, much of which was attributed to storm damage. Hurricane Maria alone caused an 80% decline in agricultural crop value overall, wracking up $780 in losses.

Europe has also endured impacts, with heavy precipitation and snowmelt ceasing shipping operations in the Rhine River in Germany. Although recent flooding has caused several problems in one of the most crucial commercial waterways, cargo ships have also had to contend with droughts. In 2022, the river’s water levels reached record lows, forcing many ships to reduce their loads by half to avoid getting stuck. This slowed the transportation of goods significantly.

You might also like: One-Quarter of Humanity Drought Stricken Amid ‘Alarming Changes’ in Global Water Cycle, UN Says

Since climate change impacts are so prevalent, 80% of companies anticipate future supply chain disruptions – in addition to 75% reporting current issues. A sound approach is needed to address the vulnerabilities before they become a reality.

5 Ways S&OP Can Prepare for Future Climate

Implementing resilience planning into S&OP strategies is no longer a subtle nuance. If companies hope to stay afloat when faced with climate change impacts, they must temper threats to the supply chain. Whether a hurricane shuts off the power at a production plant or summer heat dries up water resources, S&OP teams can prepare in five ways.

1. Simulate Scenarios

Simulating potential climate-induced disruptions allows S&OP teams to minimize real-life effects on businesses and develop continuity solutions. For example, what happens if a major storm knocks out power at a manufacturing plant? Futuring sets a plan in place to restore electricity, save energy, and restart production. 

It is crucial for teams to review processes regularly and make changes and improvements. By exhausting different scenarios, companies can measure revenue loss from possible disruptions.  

2. Diversify the Supply Chain

Many companies have a just-in-time approach to the supply chain, relying on specific suppliers without backup sources. However, nowadays, they need more. Supplier diversification can better absorb inventory shocks during climate-related weather conditions, creating greater resilience and faster recovery.

Building relationships with suppliers from different locations allows companies to fall back on an alternate source when natural disasters and other challenges strike their original supplier.  

3. Adopt Flexibility

Climate adaptation is a cornerstone of resilience planning in S&OP strategies. A business capable of modulating production at a moment’s notice ensures it can continue operations and meet consumer demand.

Adopting artificial intelligence (AI) and other technologies is ideal for real-time adjustments. For example, automation can offset potential labor shortages at a facility during unforeseen circumstances.

4. Utilize AI-Powered Solutions

Widespread industries have integrated AI solutions into their business models. In inventory management, AI-powered software improves the forecasting and tracking of goods, indicates inefficiencies, and identifies risks.

Automating the supply chain and streamlining inventory management increases revenue by 4% and lowers costs by 10%. However, achieving maximum efficiency requires S&OP teams to reconsider hiring, performance, and other functions. This requires participation from all stakeholders with weekly and monthly reassessments for more robust inventory planning. 

More about the topic: Can AI Help Achieve Environmental Sustainability? 

5. Establish a Communication Plan

A company is only as resilient as its communication protocols during climate change impacts. As such, it is crucial for S&OP strategies to plan for transmission disruptions. A formal communication plan ensures staff, suppliers, and consumers are aware of interruptions and ready to act.

For starters, businesses must have an established chain of command responsible for the initial messaging. Communicating expectations before an event is also best to foster trust and cooperation among teams. Additionally, utilizing several messaging channels allows leaders to reach everyone across various departments, keeping teams updated frequently to boost morale. 

Navigate Climate-Related Challenges With S&OP Planning

Climate change is accelerating rapidly, leaving industries in a lurch. Resilience planning safeguards companies from supply chain disruptions and lost revenue during uncertain times. S&OP stakeholders can easily achieve their long-term mission and goals by assessing the risks and embracing mitigation.