Is your Sourcing Strategy covered for El Nino?

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The weakening trade winds and the warming of the waters in the Pacific Ocean are creating concerns about possible occurrence of El Nino in 2014 – a weather phenomenon that occurs once every five years on average. According to various meteorological agencies there is a 70% -75% chance of it occurring this year.

El Nino impact

Although El Nino impacts weather patterns globally, certain countries are more prone to the extreme climatic conditions. Parts of South East Asia (Indonesia, Singapore & Malaysia) & Australia can experience low rainfall, resulting in droughts, having a direct impact on the agricultural outputs thus affecting the commodity prices. Some of the commodities that would be affected include nickel, crude palm oil, cocoa & coffee. The commodity prices for crude palm oil as well as cocoa are already seen to be ascending. According to a recent post in Wall Street Journal, experts are already estimating a 15% jump in the global food prices in as a little as three months after an El Nino occurs.

As businesses look to take advantage of the global supply chain, they also risk exposing themselves to global uncertainties. We are well aware of the supply chain implications natural disasters have.  With the global supply chain already reeling under the effects of global warming, the possibility of an El Nino occurrence will only accentuate the hardship faced by procurement professionals especially in the Mining, Food & Beverage and Consumer Packaged Goods sector.

With supply chain performance having a direct impact on companies’ bottom line, the need to protect the supply chain from costly disruptions is by all means a major imperative for sourcing execs. According to a post in Harvard Business Review traditional methods for managing supply chain risk often fail to cover unforeseen events. This requires companies to evolve their sourcing strategies for better decision making to mitigate risks emanating  from unforeseen events like that of El Nino.

Is your organization also prone to El Nino impact? If so how are you planning to mitigate situations arising out of this phenomenon?  Share your thoughts in the comment section below.

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