Four Steps to Better Understand the Impact of Weather on Retail Forecasting

9/8/2017

In the U.S., retailers are faced with dealing with a number of varying climates that each have their own volatile weather scenarios from blizzards and earthquakes to hurricanes and tornadoes. Despite the unpredictable nature of the weather, forecasting has improved dramatically in recent years and it’s having a tangible impact on retailers’ ability to accurately plan stock, reduce waste, manage promotions, and provide a better customer experience.

But even the best supply chains can be thrown into disarray by unseasonal or exceptional weather fluctuations and its impact on consumer behavior. Luckily retailers can take advantage of improved weather forecasting to deliver a better customer experience and improve their bottom lines.

Seasonal vs. weather forecasting

Taking seasonality into account in supply chain forecasting is important for the majority of products. It’s reasonably straightforward, and most retailers are well-equipped to forecast how seasonality affects different products and product groups. However, it’s far more difficult to account for geographic variation and short-term and real-time weather fluctuations.

There is a difficult balance in forecasting stock levels and this is particularly true with short shelf-life products, which are the most vulnerable to the impact of weather. Therefore, it’s important to identify the exceptions, enabling retailers to reduce or increase inventory as quickly as the weather changes.

In addition, when the weather model can predict spikes in demand, retailers can start to build promotions to help balance inventory, either leveling out demand peaks or countering for products that will be adversely affected, further reducing potential waste.

To best manage dynamic weather and its impact on consumer behavior, retailers should consider these four steps:

  1. Cluster stores based on weather responsiveness

It may seem obvious to state that different stores will respond differently to weather conditions, but accurately forecasting for weather is significantly more complex than simply separating out stores based on geography. Despite the typical patterns of specific climates, the day-to-day reality is that the weather can often vary hour-by-hour and location-by-location. The accuracy of near real-time forecasting for precise locations allows retailers to better understand exactly which stores will be impacted by specific weather variations. Building weather modeling into the supply chain forecast down to the store level can reduce waste and shrinkage, ensure product availability and increase overall margins.

  1. Identify weather-related items

Effective weather forecasting entails identifying all items that are susceptible to changing weather patterns and mapping the extent of their susceptibility and interdependency using historical data. Once these items have been identified, retailers can measure change in demand between normal weather patterns and exceptional weather.

It’s not only heat or cold that plays a role in retail forecasting. For example, storms can have a huge impact on the home improvement industry and there can be a massive increase in demand as consumers prepare for extreme weather such as blizzards or hurricanes.

  1. Incorporate weather modeling in supply chain forecasting

In addition to seasonality or long-range weather forecasts, retailers can also use short-term or real-time weather forecasts to identify the demand fluctuation when weather changes strike and make sure the right levels of safety stock are in place at warehouse and stores. In the same way, retailers should look to increase shelf display of the items most affected and reduce the items where demand declines accordingly. Therefore, the supply chain and display will have enough inventory to cope with demand and maximize sales.

  1. Prepare by running what-if scenarios

It’s all well and good to have an accurate stock plan based on dynamic weather conditions, but if the supply chain can’t manage the replenishment in real-time, the plan becomes irrelevant. The final step in successfully planning for exceptional weather is to run ‘what if scenarios.’ By simulating upcoming deliveries, orders, stock levels, and spoilage throughout the supply chain based on a unified forecast, a retailer can visualize how the supply chain would behave if the original sales forecast did not hold. This also allows retailers to directly see potential financial losses and make informed, risk-based business decisions.

In a competitive retail environment, having the product the customer wants, where and when they want it, is key to meeting consumer expectations and bottom line growth. We might not be able to guarantee the perfect weekend weather, but with increasing sophistication and accuracy, retailers can guarantee that when unexpected weather does hit, shelves are optimally stocked at the individual store and product levels.

-By Andrew Blatherwick, Chairman of the Board, RELEX Solutions

X
This ad will auto-close in 10 seconds