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Managing Water Risk in Mexico City – How some companies are taking advantage

Floods, tsunamis and droughts have been plaguing supply chains for the past decade. It seems that both too much water and too little water are becoming larger issues and disrupting global supply chains. Suppliers, customers, manufacturers, and consumers are affected and mitigating the risk has been a challenge.

In the example of Thailand in 2011, extreme flooding caused car and electronic manufacturers to close; incurring loses of $30 billion. Another example is of the Mississippi River flood in 2011, which affected transportation systems all along the riverside. The New York Times estimated $300 million a day in terms of transportation costs.1 Even as recently a drought in El Niño in Panama has become a pressing issue for shippers. It has forced the cancel to begin limiting the size of ships that are passing through beginning September since the water height cannot accommodate for larger ships. Those traveling through might have to forego some cargo, and customers with weak relationships with shipping carriers could see a delay in their shipments.3

Mexico’s water crisis has been circulating since 2009. Similarly to droughts that have occurred in California, Mexico is encountering huge water shortages, leading to insufficient amounts left for agricultural, domestic, and industrial users. For Mexico, water in treated as an asset.

Comisión Nacional de Agua or CONAGUA is responsible for controlling how much of water is partitioned as they manage the hydraulics systems. CONAGUA also advocates for social conservation of the water sources and serves as the parent to federal, state, and municipal governments for water control.

About 60% of the water in 2006 was extracted from surface water, like rivers and lakes, and the remaining come from aquifers. Although the aquifers pump out purified water, Mexicans are still wary of the water quality. According to CONAGUA under 10% of sewage water is treated in metro areas, which may account for this distrust.2

With the given expansion of industrial projects and business as well as a rising population, water becomes scarcer coupled with the existing climate change. In 2006, a majority of water was allocated towards agriculture, 14% for the public, about 4% towards industrial needs, and about 5.4% towards thermal power.6

As the situation becomes more serious, there are entrepreneurs and businesses that are discovering solutions and manipulating their existing supply chain to adapt to the water risk. One example is by Ford, who for long has been operating in Mexico. Transportation goods including tractors, vehicle parts, cars, and delivery trucks are among the second highest exported items out of Mexico7 and likely a part of that figure is due to Ford.

Most recently, April 2015, Ford invested almost $2.5 billion USD to create new engine and remission plants in Mexico. It will not only bring jobs to the area, but the products created in the plants will allow for better driving experiences and fuel economy gains for customers. The Mexican plants create products that will be exported all over the Western Hemisphere and in the Asia-Pacific.5

Ford acknowledges their dependence on water in their supply chain process and the manufacturing of car products. For Ford if the price of water rises or if it continues to become scarce the company will have higher operating costs. As of now, the company has 24% of its operations in places of high water risk, of them in Mexico. In retaliation, Ford recreated their water strategy by reducing the use of water at their facilities and asking suppliers to report their water usage. In Mexico, Ford uses new techniques such as Minimum Quantity Lubricant which reduces coolant and water that are used for conventional wet machining. It can save up to 282,000 gallons of water per year for a line that produces 450,000 engines.4

Similarly, a local group of entrepreneurs have taken advantage of the problem by creating Isla Urbana, translated to Urban Island in English, a social enterprise that attacks the problem of water conservation. The company has created water filters that can be installed into homes and for companies to purify rain water and help conserve water. They offer kits and devices that will capture, store, save, and purify water. The company has helped install the systems in homes, schools and companies. Depending on the size of the entity, Isla Urbana has help some small companies even save up to almost US$7,000 per year.8

As climate change continues, companies will have to adjust and adapt, and with it will come new technologies and strategies to combat the inevitable, scarcity of resources.

-Riti Patel, Assistant, Supply and Value Chain Center

Sources:

  1. http://water.columbia.edu/research-themes/global-floods-initiative/managing-water-risks-through-the-supply-chain/
  2. http://www.pbs.org/newshour/bb/mexico-city-water/
  3. http://www.supplychain247.com/article/panama_canal_limits_ship_size_due_to_el_nino
  4. http://corporate.ford.com/microsites/sustainability-report-2014-15/environment-water-risks.html
  5. https://media.ford.com/content/fordmedia/fna/us/en/news/2015/04/17/ford-announces-2-5-billion-usd-investment.html
  6. http://www.paot.org.mx/centro/boletin/agosto/estadisticas_agua_mexico_07.pdf
  7. https://atlas.media.mit.edu/en/profile/country/mex/
  8. http://islaurbana.mx/
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