Weather-related disasters continue to dominate news headlines. As the U.S. braces for the upcoming ‘Godzilla’ El Niño, weather reporters are carefully analyzing how this will impact the severity of winter and flooding in the near future.
These kinds of weather disasters are difficult to predict, but their impact on business performance is real and measurable, playing a critical role across all business functions. In fact, more than half of the nation’s economic slow down in 2014 has been connected to weather-related factors, according to Goldman Sachs economist David Mericle.
In 2014, the agricultural sector alone lost $1.8 billion due to the California drought and the recent harsh winter in the U.S. crippled global production, impacting outbound and inbound shipments and greatly delaying fleet production for Ford, General Motors and Toyota Motors.
Few companies have the right kind of statistical analysis to reveal how weather affects their operations so they can proactively forecast and plan for various weather events. Understanding and incorporating external weather patterns into predictive analytics during annual forecasting will keep corporations ahead of the curve in today’s highly competitive market.
Below, see how three specific industries are critically affected by local weather conditions.
The severe winter in 2014 affected more than 60 percent of the automotive industry. Ford and General Motors experienced sales declines of 7.2 percent and 12 percent, respectively, as a direct result of the weather’s impact on supply chain and manufacturing operations.
Today’s manufacturers operate global supply chain processes that are highly dependent upon local and global weather. Extreme conditions that shut down railways, highways and ports can translate into $1.2 million in lost revenue per hour when major automotive companies are forced to halt operations.
With many manufacturers operating facilities world-wide, weather conditions in one region can have global implications on product availability. For example, severe flooding in Thailand resulted in product shortages among tech companies across the globe, including Apple, Dell and Hewlett-Packard Co.
Any delay in moving products to and from suppliers and OEMs can make or break the timing and completion of an entire line of products, especially those with complicated assembly processes, such as automotive fleets. In turn, this affects product availability, directly impacting sales and distribution.
It’s no secret that the California drought has directly impacted agriculture and food processing industries, but the lack of rain is also affecting the retail industry. California houses 90% of Pima cotton and produces 75% of the world’s denim, which requires a significant amount of water to create the popular “distressed” look. Retail giants like Levi and American Apparel are being forced to look into more efficient ways of producing their products due to this drought; otherwise they will have to raise product prices around the globe.
Severe weather also plays a huge role in retailers’ ability to open for business and consumers’ willingness to shop. In fact, a recent IHS global study found that a one-day shut down in New York can translate into $152 million in lost retail sales.
The weather’s affect on spending habits also creates significant implications for retailers. From the type of products to the location of these products in the store, the weather plays a big role in what consumers are looking for and where. Prevedere client RaceTrac was able to incorporate weather patterns into their models helping to predict foot traffic with 99% accuracy, and is now about to stock its shelves and staff its stores more effectively.
“Using Prevedere, our analyst has created regional models for projecting guest counts for our more than 370 stores nationwide. These models have projected counts to within 100 guests – that’s more than 99 percent accuracy. Pretty incredible!” -Brad Galland, Director of Financial Planning & Analysis for RaceTrac Petroleum.
Construction output makes up about 6.3 percent of a nation’s GDP. Any negative impact the weather has on construction has a direct effect on this number, and construction is highly dependent upon even the smallest weather changes, such as rain or freezing temperatures.
Of course, working conditions create the most obvious implications. Rain and snow can instantly shut down construction operations, keeping engineers and laborers out of work.
For construction products, such as concrete, mortar or paint, freezing or hot temperatures can change the product consistency within hours, wasting time and money and causing severe delays. Likewise, extreme temperatures or rain can greatly alter recently laid infrastructure, resulting in duplication of work and impacting overall construction timelines.
As with nearly every industry, supply availability plays a huge role in project completion and timeliness. Any delay in logistics processes for construction equipment translates into a delay or lack of products that are critical to move construction projects forward.
You can’t predict the weather, but you can predict its effect on business performance.
The ability to understand how external weather conditions can create powerful predictive analytics for business forecasters is critical to out-pacing competitors. Although the weather is unpredictable, incorporating weather scenarios into business analytics for annual forecasts helps proactive companies plan for extremes, answering what-if scenarios regarding complex data patterns that directly impact their bottom line. Start making better forecasting decisions by incorporating weather data into internal business analytics – contact us.
Want to learn more? We’ve outlined five reasons why external business drivers are vital to your company’s performance here.