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7/12/04
Effects
of Weather
on the Supply Chain
Written
by:
Scott Hudson, SCRC |
|
Weather
plays a big role in what consumers buy at the
store or what customers buy from their suppliers.
Producers must pay attention to this information
because having the wrong product, in the wrong
place, at the wrong time (1) can cost money and
visibility.
Consumer reactions to weather can be the missing
link in supply chain planning. Weather data should
be applied early in the supply chain to develop
targeting strategies for raw material purchasing,
production scheduling, advertising and promotion,
allocation and distribution, and price markdowns
(1). There are many weather forecasting companies
that partner with producers to give forecasts
in relation to supply chain planning.
Products Influenced by Weather
In the winter, more snow boots, generators, shovels,
and cold medications are bought. In the summer,
sales of suntan lotion, garden items, and beach
wear increase (2). The weather is a direct influence
on the sales of these items. Several items have
short time spans when they can be sold. For example,
lawn and garden items have an average selling
span of six weeks in the early spring. Seventy-five
percent of sun care sales occur between Memorial
Day and Independence Day. Of these sales, 25 percent
occur within two days of each of those days. The
weather during these times has a huge influence
on what people buy.
Often, producers plan their demand on a set weather
pattern from year to year. However, weather on
a specific day or week is only similar from one
year to the next a maximum of one in four times
(2). Also, consumer choices vary across the country
when weather changes. Based on surveys, consumers
in Atlanta say the beginning of spring occurs
at 60 degrees Fahrenheit but consumers in Detroit
say it occurs at 50 degrees Fahrenheit (1). Therefore,
weather trends over longer periods of time and
in different regions of the country must be considered
in demand planning.
Weather and Demand Planning
Chris Cawthorn of Strategic Weather Services,
has developed a four-phase plan to determine what
effect weather will have on product demand (2).
| Phase
1 |
Create
a Historical Analysis: Plot product sales
by store location, product, and product category
against the weather over time. This will give
a positive or negative correlation to product
sales with a certain type of weather. |
| Phase
2 |
Assess
Missed Opportunities: Referencing the historical
analysis, analyze where sales could have increased
if the weather would have been taken into
consideration. This will give the company
an idea of where additional sales could have
occurred if demand planning had included a
specific weather element. |
| Phase
3 |
Create
Product Demand Forecast: Using weather data,
missed opportunities, and historical sales,
product demand can be forecasted more accurately
based on when the weather changes. This will
help develop strategies for marketing, purchasing,
production, and distribution. |
| Phase
4 |
Develop
a Future Planning Strategy: Develop a plan
on how the company will use consumer demand
intelligence with weather forecasts to predict
demand. |
Weather
Forecasting Assistance
The weather data market is worth billions of dollars.
There are 35-40 players in the market including:
Accuweather, Weather Services International, Weatherdata,
and Weather Predict. Companies such as Wal-mart,
Home Depot, and Sears can use weather information
to direct products to locations where demand will
increase due to weather changes (3). Energy companies
such as Progress Energy and Duke Power, SCRC members,
use weather data to determine peak times of power
use by residential and business customers (3).
Companies such as John Deere, an SCRC member,
can monitor the country to see where spring temperatures
appear first. The company will then be prepared
to send extra lawn and garden supplies to the
places where people have yard work on their minds.
Weather Predict, a Raleigh based company, provides
weather services to the financial, energy, and
yachting industries. The company is interested
in growing by partnering with supply chain companies
(3).
Supply chains provide a huge opportunity for growth
for the weather predicting industry. Companies
should stop using seasonal demand to predict sales
and should use much more detailed demand data
to predict the moment when sales will occur based
on consumers reaction to the weather. Cawthorn
says “forecasters who understand when and
why the consumer buys will have a strategic advantage
over their competitors (2).” The weather
must be considered when making many supply chain
decisions.
References:
(1) Cawthorn, Christopher. Sunny today, sales
tomorrow. Bobbin, Vol. 40, Iss. 9. May 1999.
(2) Cawthorn, Christopher. Weather as a strategic
element in demand chain planning. The Journal
of Business Forecasting Methods and Systems, Vol.
17, Iss. 3. Fall 1998.
(3) Cox, Jonathan. Forecast Accuracy Pays. The
Raleigh News and Observer, Feb. 26, 2004.
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