What We Think

Heatwaves Are a Supply Chain Risk

A sign that says "Heat Wave Ahead."

When we think about weather disruptions that are likely to affect logistics and delivery patterns, what comes to mind is traffic congestion due to heavy rain, dense fog, snow or ice, not heatwaves. The UK doesn’t really experience any violent weather conditions when compared with other countries that have to deal with raging bushfires, hurricanes and drought. But it gets hot here sometimes, and we are usually unprepared.

Lots of consumable products and components and many of our staple foods come from other regions of the world. Extreme weather conditions disrupt supply chains globally on so many levels; from agricultural production to changes in consumer behaviour. In 2010, Russia suffered a severe heat wave. The resulting economic losses were estimated to be US$15bn as drought and wildfires destroyed crops, particularly wheat. The knock-on effect was export restrictions on wheat in Russia, which contributed to global price increases.

Recently, the USA has had to face some destructive conditions: horrendous wildfires, heat waves, loss of electricity, droughts, flooding, and severe storms. These events caused loss of life, crop failures and supply chain interruption on a massive scale from demand planning to transport logistics. It’s not always easy to predict such events but understanding the possible weather scenarios can make us more resilient and less reactive.

Can technology help us predict the weather?

In the UK, retailers and suppliers can buy weather forecast services from the Met Office. Technology has become highly sophisticated; advances mean that next week’s weather can now be forecast to a high degree of reliability. We are increasingly able to rely on regional and local weather forecasts to make informed business decisions.

Sadly, according to the Met Office, at least a third of retailers and their suppliers do not use weather data in their supply chains. This is despite the fact that half of UK companies cite the weather as one of the top three factors external to their business that drives consumer demand. In a Met Office survey this year among their current users, 62% report improved customer service. They also confirm better sales forecast accuracy (57%) and better on-shelf availability (51%) as well as less waste (43%). The top uses for weather data among retailers were short-term sales forecasts, planning stock availability and scheduling product deliveries from the distribution centre to store.

Forecasts can help retailers, wholesalers and producers to remain agile and respond flexibly to unpredictable weather. Raw material purchasing, production scheduling, distribution and labour availability may all be affected. Some companies are even employing weather analysts to assess the possible effect on their supply chain of potential adverse events.

Hot weather and fast fashion

Fashion retailer H&M posted a 9% profit drop in the third quarter, after a heat wave in the USA led to a severe drop in demand for its autumn and winter collections, according to the Wall Street Journal. H&M was unable to respond to this sudden shift in weather. Because of its focus on low-cost-country sourcing, 80% of its suppliers are located in Asia which means long lead times. Retailers that source products in Europe and North Africa and at home in the USA can be much more flexible.

Responsiveness in the “fast fashion” supply chain becomes a differentiator when the weather does not conform to the normal expected pattern. In eastern Australia this year, springtime came late and fashion retailers were forced to cut prices to move unsuitable stock. The Sydney Morning Herald reported that Zara fared the best of the retailers due to their replenishment routine that included two stock drops a week and garment tracking via radio frequency identification technology (RFID). Other competing retailers were slow to react to the revised consumer needs and suffered.

Road surfaces and rail tracks are affected by heat too. When high temperatures are sustained for long enough, concrete expands and can buckle, crack, or shatter and tarmac can melt. Recently, four lanes of highway 50 in Sacramento, California caused great disruption to the flow of traffic when the surface broke up. This can be downright dangerous to heavy goods vehicles.

Hot weather and biologics

The integrity of the cold chain is vital in the manufacture and transportation of some pharmaceuticals. If the cold chain is broken, the products become useless. Certain vaccines need to be kept at a constant temperature of between +2°C and +8°C. This is a logistical challenge when dispatching or cross-docking these goods. Failure can be very expensive.

A vaccine shipment travelling across the world from Switzerland to Africa may be exposed to temperatures ranging from -4C to +25C during its 2-day journey.   Such temperature fluctuations are as much of a risk for shipments bound for different parts of the UK as they are for another hemisphere. Constant temperature monitoring is necessary to maintain cold chain product integrity.

What about the impact of climate change?

Climate change is already having an effect on supply chain risk. We know that global mean temperatures are rising and insurance claims due to major extreme weather events have increased markedly.

Companies that understand that climate change is real and that their business continuity may be affected are looking for innovative ways to mitigate the risks. Innovations such as better packaging, using more effective and cleaner energy and eliminating waste can make a company more competitive whatever the weather.

Go Supply Chain Consulting can help you to optimise your supply chain operations. We provide capacity and productivity solutions in fast-changing business environments.

Our directors are experienced logistics consultants who have worked closely with clients in a range of sectors and countries to improve or expand their warehouse and distribution centre operations.

Published by: Go Supply Chain Ltd