January 23, 2015

El Niño Impacts on Supply Chain and Supply Chain Resilience

Charlotte Hicks

El Nino Drought - ResilincIf you are like me, you’ve noticed that this winter seems to be atypical.  For example in North Carolina, it’s January, and I just turned on my air conditioner. Winter just isn’t happening this year in my area. Is this a possible sign of an El Niño?

Weather experts believe there’s a good chance the weather phenomenon El Niño will appear in the next six months. Why should this be important to supply chain experts? Because weather patterns can impact transportation, manufacturing and raw materials. Below are some examples:

Potential Impact to Transportation

One of the traits of an El Niño is that some areas get more precipitation, while others remain dry. Floods tend to disrupt transportation more than drought, and areas prone to higher than normal rainfalls include the US Southwest and Southern Rockies. Remember those recent rains in California? Other areas, such as Argentina and Brazil, also experience extra precipitation during an El Niño year. If you are sourcing from or through these areas, please be aware that you could experience some transportation delays.

Manufacturing Faces Potential Impacts As Well

In 2014, parts of Southeast Asia—especially Malaysiaexperienced severe droughts, and it created a serious impact on the supply chain (Han, 2014). Because these areas depend on water, not just in the manufacturing process but also in generating electricity, droughts can have devastating effects on manufacturing. Southeast Asia is the home to many cleanroom consumables manufacturers as well as electronic component manufactures. At this time, Southeast Asia is getting plenty of rainfall, however, we should remain vigilant in monitoring events in this area.

Weather Pattern Effects on Critical Raw Materials

Because water is key to growing crops an El Niño can have serious impacts, both good and bad, to raw materials. (New Caledonia, 2014).  In India, Australia and Southeast Asia there tends to be droughts, while the US Midwest generally experiences higher than average rainfall. While Midwest soy and corn harvest are usually good during an El Niño, sugar, palm oil and guar gum harvests from drought stricken areas could be low, causing market tightness. These products are important in the BioPharm industry, being used downstream in media or excipients in their therapeutics. Moreover, should the US Midwest get too much rain in June/July, there could be market tightness for phosphate and potassium-based materials, like phosphoric acid or potassium hydroxide.

Personally, I have been following El Niño and La Nina impacts to the supply chain for many years. Surprisingly, there are few comprehensive articles on how these weather phenomena impact the supply chain. Below is my list of the materials that I closely monitor during an El Niño year. Please feel free to comment on the list so together, we can build a resilient supply chain:

US Midwest Impacts:
Amino acids and their derivatives, specifically lysine
Citric acid and its derivatives
Carbohydrates and their derivatives
Ethanol and SDA/CDA alcohol blends
Phosphoric acid and phosphate salts
Potassium hydroxide and potassium salts

Southeast Asia Impacts:
Cleanroom apparel
Electronic components
Guar Gum
Palm Oil and downstream components

South America Impacts:

Click here to check out our recently updated supply chain event monitoring service or read more about the 2011 Thailand flood and Japanese earthquake case study on supply chain resilience.

Topics: supply chain resiliency