Weather Analytics and the Supply Chain

One new and exciting area that is emerging is the use of weather analytics to manage supply chains.  Three companies that specialize in this area are Verisk Analytics which has a subsidiary called Verisk Climate, Weather Analytics and AccuWeather Enterprise Solutions. Weather Analytics and AccuWeather Enterprise Solutions both grew out of the weather industry.   These companies provide weather data and analytics to help companies manage their business and reduce risk. A key aspect to managing the supply chain is to mitigate risk. By utilizing historical weather information and future weather forecasts, companies can incorporate this information into their demand planning systems to increase revenue and reduce risk in their day to day operations.

 

Managing weather “big data” and incorporating with other company specific data is relatively new. Weather forecasting has gotten better and will continue to improve as tools, techniques and modeling software continues to improve. In addition, long range forecasting and long range models are getting very good at general patterns and trends.  Coupling historical weather information with previous sales information in a demand planning system along with a long range forecast allows companies to better plan and forecast sales.  Let’s look at three different perspectives from a shipper, 3PL and transportation company on how each would be able to utilize weather and climate analytics.

 

Shippers are already utilizing historical weather information and long range weather forecasts. Major retailers are utilizing historical sales information along with historical weather analytics to feed into demand planning systems. In addition long range weather forecasts are entered into the demand planning process to forecast specific product demand.  The result retailers are pre-positioning product in stores in anticipation of the weather. If the long range forecast is for cold and snowy weather along the east coast, clothing retailers may move gloves and caps to those stores. Hardware retailers may move snow shovels and ice melt into stores.  In addition, data is gathered and collected on the customers buying habits during certain types of weather events to establish buying patterns.

 

Third party logistics providers and freight forwarders would utilize weather analytics based upon the historical seasonal shipping patterns. During the fall peak season, freight forwarders may want to mitigate supply chain outages and manage supply chain risk by utilizing historical weather analytics and long range forecasts, a freight forwarder could determine if there is additional risk due to the hurricane season on the east coast. The freight forwarder may decide to book a container on a ship headed to the west coast avoiding any potential outage and minimizing supply chain risk.

 

Transportation companies are dependent on fuel for their vehicles. Most transportation firms purchase fuel on contracts and some deal in fuel commodities or fuel derivatives. By utilizing historical weather analytics and linking to past fuel commodity prices and tying to long range weather forecasts. Transportation companies would be able to save money on fuel and could engage in derivative fuel contracts to avoid price spikes and lock in fuel prices.

 

The melding of weather analytics into supply chain management is relatively new and will become important to shippers, 3PL’s and transportation companies as an effective tool to help these entities manage their business. Check back with Logistics Trends as we track what is happening in this evolving area. We can be reached by email jbisaha@logisticstrends.com or by phone 770 639-2230.