Those of us who live in northern Europe enjoyed an unseasonably hot Easter this year. But readers in southern Europe, for whom a hot Easter is the norm, should read on for there is a supply chain twist in this tale.
The hot weather came as something of a welcome surprise to many, but not to the UK supermarket chain Safeway. The supermarket’s managers had armed themselves with a special 10-day weather forecast from Britain’s Met Office. It predicted the hot spell with a high degree of probability.
As a result, managers took stocking decisions based on their knowledge of what hot weather would do to consumer demand – more customers wanting salads and barbecue meats, fewer buying ready meals. Moreover, the forecast even gave store management time to put together some quick promotions.
The outcome: a ´4.5m uplift in sales over the four days of the Easter holiday. It’s no surprise that other supermarket chains are looking urgently at the efficacy of using 10-day forecasts. And it’s time for other industries to start thinking about how they could factor weather forecasting into their supply chain planning.
A potent business tool
Three factors now make weather forecasting a much more potent business planning tool.
The first is the higher degree of accuracy of the forecasts made possible by running highly complex models of the atmosphere on incredibly powerful supercomputers. When the Met Office installed its two supercomputers five and three years ago, it assembled the third largest amount of computer processing on one site anywhere on earth. By 2005, it expects to multiply the amount of computer power it has twelve-fold.
This means that the Met Office is able to produce 10-day forecasts with a reasonable degree of accuracy – highly reliable over the first five days, but with slightly declining accuracy thereafter. More computer power will push out the boundaries of accuracy from the short to the medium term. Which means logistics professionals can start to use forecasts as a reliable business tool.
The second factor which is encouraging more supply chain managers to use weather as a forecasting tool is the fact that business models are demonstrating more and more precise links between climatological factors and product sales. Ice cream in hot weather is obvious, but it was only recently that one supermarket chain uncovered a link between the temperature and sales of leg wax and ladies shavers. There are many more links just waiting to be discovered and quantified.
In some cases, the maths behind these linkages is becoming very sophisticated. For example, for every degree the temperature climbs above 18 degrees centigrade, sales of soft drinks rise four time as fast as they were rising below 18 degrees. But when the thermometer hits 24, sales start to fall again because people no longer find carbonated drinks quench their thirst. Instead, they switch to fruit juices.
Let’s give this activity a new name – product climatology. It’s going to become a significant weapon in supply chain management because it will help to solve weather-driven demand for products. Met Office research has found that one in five British companies have admitted to being either over- or under-stocked because of the weather.
The third factor in all this is the fact that it’s now possible to develop forecasts accurately to ever smaller geographical areas. Already the Met Office is supplying forecasts that map on to regional distribution networks. This gives the supply chain the opportunity to fine-tune distribution to meet the differences in likely demand from one place to another.
And those who live in parts of Europe where the sun always shines needn’t think this is not relevant to them. Global warming and the chance of disruption to centuries-old weather patterns could soon change things.
As with anything new like this, the prizes will go to those who are cleverest at using the information – like Safeway. Uncovering new subtle weather-product links with mathematical precision will be one area. But using forecasts of bad weather to reschedule deliveries could be another.
The Met Office is talking about moving from pure weather forecasting to ‘decision advice’ – where it combines its meteorological skill with its clients’ knowledge of their businesses.