Weather as a Strategic Element in Demand Chain Planning

Article excerpt

Demand for many products and services is weather-driven . . companies that do not consider the weather in their demand-chain forecasts may be overlooking an important variable ... weather often determines the starting and ending points of a merchandising season.

Product demand forecasters are continually looking for ways to improve their supply chain infrastructure to reduce costs and time from source to market. While these improvements benefit those in the logistics pipeline, they also contribute to a significant shift in the marketplace. Today's market is a buyer's market, and the consumer is in control. With the ready availability of an extensive selection of products and services at competitive prices, consumers no longer simply accept what is available when they shop. Instead, they expect to find exactly what they want and when they want it. That is, when it comes to delivering the goods, "better late than never" doesn't always apply.

People are now spending less time on shopping, and are buying closer to their needs, generally defined as replacement shopping or just-in-time shopping. This further reduces the opportunity to satisfy the consumer and make the sale. These shifts in market dynamics have persuaded many product demand forecasters to change their focus from the "supply chain" to the "demand chain" and to investigate why and when the consumer buys. Weather is one of the key factors that affects a consumer buying behavior.

WEATHER'S PROFOUND INFLUENCE ON DEMAND

Analysis of point-of-sale data reveals that weather has a profound influence on consumer behavior, affecting consumer choice, store-traffic volume and demand for many products. Examples include auto supplies such as batteries, wiper blades and radiator fluids; summer and beach wear, overcoats and snow boots, and other apparel; cold, flu and allergy medications; a variety of foods and beverages such as iced tea, soup and ice cream; sporting goods; lawn and garden items; and many others. In fact, weather often determines the starting and ending points of a merchandising season, as well as "midseason peaks." It can not only shift a season but also make it longer or shorter. (See Chart 1) As such, weather along with other factors can influence the bottom line, directly impacting corporate revenues and profits.

This knowledge is especially important to forecasters who face a narrow window of retail opportunity. Research has determined, for instance, that the average selling season for some lawn and garden products can be just six weeks, and precisely where on the calendar those six weeks will fall depends on the weather. Sun-care products, likewise, have a brief season. About 75% of the season's sales for suncare items occur between Memorial Day and Independence Day, with 25% of the total annual volume sold on or around those two days. Again, where the season begins and ends and how that 25% is divided between these two days depends on the weather.

There are other times as well when it is important to know when a season will or won't change. Most mass-product outlets "share" shelf-space, displaying charcoal briquettes in the summer and fire logs in the winter, or cold and flu remedies in the winter and sun-care products in the summer, for example. Knowing when the seasonal change will occur in each market further increases the likelihood of having the right product on the shelf at the right time.

Yet most forecasters do not factor weather into their forecasting models. They simply "assume" that this year's weather and its effects on their business will be same as last year. In fact, the opposite is true. Weather is similar from one year to the next only one in four times at best. Because weather seldom repeats itself from season to season, forecasting purely on the basis of "last year's sales" often results in over- or under-production that creates profit-stealing overstocks or stockouts, as well as consumer complaints. …