FX International Payments
By Karen Lynch
British supply chains are increasingly global, exposing businesses to weather-related risks abroad as well as at home. An often-cited example is the 2011 Chao Phraya River flood in Thailand, where about a third of the world’s computer hard drives were being produced. The global electronics market ended up feeling the impact well into 2012.2
Looking ahead, the World Economic Forum pointed to similar risks in China, in its Global Risks Report 2017. “Given the scale of China’s manufacturing production and its role in the global supply chain, the business impacts of natural disasters could be astronomical,” the report said. “Flooding in the more economically developed coastal provinces already accounts for more than 60 percent of the country’s losses due to flooding.” And it’s not always about rain; U.K. rail services have been disrupted by heatwaves, as rails buckle and speed limits are put in place.4
In fact, it’s not uncommon for logistics companies today to issue weather advisories, breaking down international supply chain management risks along the path of a given storm. Marisol International, for example, recently reported rail, road, air, port, and truck terminal issues resulting along the path of Winter Storm Niko in the U.S.5
Other case studies point to the complexity of managing weather risks. When Australia’s 2016-2017 winter arrived late on the eastern seaboard and then spring started off chilly, fashion retailers were forced to cut prices to move stock – and four ultimately closed down, according to an article in The Sydney Morning Herald.6 Global “fast-fashion” retailers such as Zara were seen to be relatively resilient, in part due to a supply chain routine including two stock drops a week and garment tracking via radio frequency identification technology. But domestic apparel companies, with an average of about one major stock delivery a month, were seen as slow to react to sales trends. Weather, in this case, was seen contributing to the collapse of four Australian apparel chains in just two weeks.7
Technology is fast evolving to help supply chain managers deal with weather risk. For example, IBM bought the digital assets driving the Weather Channel in 2015.8 IBM derives supply chain risk insights by applying artificial intelligence and its machine-learning capabilities to this data, in combination with social media, newsfeeds and historical data. Other companies, such as Understory, are deploying sensor technology and the Internet of Things. Understory’s premise is that weather satellites “measure what’s in the clouds but not what’s happening on the ground, where it matters most to your business.” Its weather stations take 3,000 measurements per second on temperature, wind speeds and rainfall to provide shippers with historical weather data for demand planning, seasonal shipping patterns and other supply chain management needs.9 As supply chain management systems evolve, they are generally blending weather data with other information from multiple different sources, “automatically cleaning and filtering the data, and transforming it to be useful for analysis,” according to Michael Watson, a professor at the Northwestern University in the U.S.10 New tools are enabling this to be done much better and faster, he said.
Embracing such innovation, a major fashion school in New York City now offers a 15-week course, called “Predictive Analytics for Planning and Forecasting: Case Studies with Weatherization.”11 Here, the Met Office reports that retailers and suppliers who buy weather services have reported improved customer service (62 percent), better sales forecast accuracy (57 percent), better on-shelf availability (51 percent) and less waste (43 percent).12 The Met’s own service for retailers puts weather data into an industry context and plots its evolution over time. Meanwhile, back in Thailand, the government has been working on flood alert systems.13,14
Lower-tech approaches are also used to respond to such recurring weather events as El Niño, in the Pacific Rim. “The key to riding out a situation like El Niño is to have a supply chain that is flexible enough to adapt,” according to an article in Supply Chain 24/7 by Matt Castle, Vice President, Global Forwarding Products and Services at C.H. Robinson, a third-party logistics provider.15Efficient and accurate inventories can help identify what must be shipped by air and what can wait an extra week to arrive by boat, he writes. Further, deepening relations with transportation companies can help “favored shippers” get better access to alternative routes during bad weather.
Bad weather can be bad for business, and the globalisation of supply and demand makes it important for supply chain management to take weather into account. Systems of increasing sophistication are available to mitigate the risks, and solid business planning “the old-fashioned way” is also important to weather the storms.
Karen Lynch is a journalist who has covered global business, technology and policy in New York, Paris and Washington, DC, for more than 30 years. Karen also is a principal at Content Marketing Partners.
1. “Horizon Scan Report 2017,” Business Continuity Institute;http://www.bcifiles.com/HorizonScan2017.pdf
2. "Supply Chain Disruption: Sunken Ambitions", Financial Times; https://www.ft.com/content/6b20d192-0613-11e1-ad0e-00144feabdc0
3. Global Risks Report 2017,World Economic Forum;http://reports.weforum.org/global-risks-2017/part-3-emerging-technologies/3-3-physical-infrastructure-networks-and-the-fourth-industrial-revolution/
4. Hot Weather: Rail Services Disrupted on U.K.’s Hottest Day,BBC;http://www.bbc.com/news/uk-36833042
5. "Weather Advisory: Winter Storm Niko to Cause Shipping Delays",Marisol International; http://blog.marisolintl.com/weather-advisory-winter-storm-niko-to-cause-shipping-delays
6. "Stitched Up: How the Global Giants are Squeezing Out Australian Fashion", Sydney Morning Herald; http://www.smh.com.au/business/retail/stitched-up-how-the-global-giants-are-squeezing-out-australian-fashion-20170209-gu9arc.html
8. "IBM and the Weather Channel. A Match Made in … Huh?", CNN; http://money.cnn.com/2015/10/28/technology/ibm-weather-channel/
9. "A Comprehensive Weather Platform for Supply Chain Management,"Understory; http://understoryweather.com/business-solutions/weather-analytics-solutions-supply-chain-management/
10. "The Gurus are Back! 2017 Supply Chain Predictions",Supply Chain Digest;http://www.scdigest.com/firstthoughts/17-01-26-1.php?cid=11850/
11. "The Next Fashion Trend: Weather Forecasting",Wall Street Journal; https://www.wsj.com/articles/the-next-fashion-trend-weather-forecasting-1480248007
12. "Understanding the Role of Weather in the Supply Chain", the Met Office; http://www.metoffice.gov.uk/media/pdf/g/c/151009_Understanding_the_role_of_weather_in_the_supply_chain_report_Final.pdf
13. "Thailand Province Successfully Trials Flood Simulation System,"ComputerWeekly; http://www.computerweekly.com/news/450297413/Thailand-successfully-trials-flood-simulation-system
14. "Thailand Unveils Flood-Prevention Plan,",Al Jazeera; http://www.aljazeera.com/news/asia-pacific/2012/01/201212053713768888.html
15. "3 Ways El Niño Could Impact Your Supply Chain and What You Can Do About It",Supply Chain 24/7; http://www.supplychain247.com/article/3_ways_el_nino_could_impact_your_supply_chain_and_what_you_can_do_about_it