8 Steps To A More Weatherproof Supply Chain

Kai Goerlich

In Germany the first spring flowers are already blooming, and it seems we will have a winter without much cold weather. In the meantime, the U.S. faced an extreme blizzard with an estimated impact of around USD $4.0 billion, and the UK suffered from severe rain and floods.

weather_losses_2016Such weather events are a nightmare for anyone who deals with logistics. As unpredictable as these events may seem, there is little doubt that climate change is to blame for extreme weather, and that more will come. A report published by the U.S. Bulletin of the American Meteorological Society shows that human activities greatly increase the likelihood of unusual weather patterns. Climate change seems to be related to some (but not all) of the extreme heat waves and droughts, heavy rains, and winter storms we’ve seen recently. Tropical cyclones are very likely also influenced by human-caused climate change, as well as the melting of the Antarctic sea ice. With more data the details will get clearer in the future, but what is already clear is that ongoing climate change will induce more extreme weather events in the future.

The top weather-induced disasters (leaving out other natural disasters such as earthquakes) in the last four years were flood, tropical cyclone, and severe weather (thunderstorms), which accounted for around 75% of global natural disaster losses, or around USD $130 billion in 2015, according to Aon Benfield. While the difference from year to year may be very large, overall weather-induced losses have increased in every major region over the last 10 years.

Weather’s influence on the supply chain

Extreme weather events send long-lasting ripples through the supply chain. Floods, thunderstorms, and droughts usually affect water availability and quality, influencing agriculture and food production in the longer-term, often even on a global scale. As the supply of agricultural products is relatively concentrated, effects can add up. Rice especially is expected to be impacted by climate change and is also highly concentrated in its production, according a risk assessment by PwC. Also, 80% of the world’s almond production is based in the U.S,and as California faces an ongoing 4-year drought, prices are already rising on the global market.

But we don’t need to look just to the extremes, as weather in general is the third-biggest external factor influencing consumer demand, and with it supply chains, according to a report by the UK’s Metoffice. As the retail business is quite sensitive to weather changes, already 40% of the retailers and 35% of the suppliers in UK use weather data to predict demand changes, according to Metoffice. This data is mostly used for sales forecasts, stock availability, and promotional planning. Temperature seems to be the biggest trigger for consumer behavior — especially as it gets hotter — followed by snowfall, extreme weather, rain, and frost, but average sunshine hours matter as well.

Understanding that weather is one of the main triggers of consumer behavior and that we will face more extreme weather events in the future gives us two incentives to make our supply chains more weather-proof. Here are eight steps to create a more weather-proof supply chain:

8 steps to create a more weather-resilient supply chain

  1. Build up a risk assessment of your supply chain by identifying concentrations, dependencies, and potential bottlenecks in production and logistics.
  2. Identify resource and product substitutes across your supply chain.
  3. Enhance the reaction time of your supplier network for fast onboarding of suppliers based on local needs or disruptions.
  4. Identify alternative routing and logistic providers.
  5. Setup a digitized, real-time stock management and logistics system using IoT and real-time positioning that enables you to source with high flexibility and resilience.
  6. Use historical weather and sales data to learn from past disruptions and recurring consumer demands.
  7. Forecast demand in real time to sense and react to potential disruptions and short-term changes.
  8. Track your customers across channels and respond in real time with weather and location-relevant offerings.

For more on supply chain strategies, see What Is An Extended Supply Chain?

Kai Goerlich

About Kai Goerlich

Kai Goerlich is the Chief Futurist at SAP Innovation Center network. His specialties include competitive intelligence, market intelligence, corporate foresight, trends, futuring, and ideation. Share your thoughts with Kai on Twitter @KaiGoe.