As the extreme temperatures and violent storms caused by climate change continues to create havoc, a team of researchers from Columbia Business School and The Wharton School is investigating the impact of weather on productivity. Using productivity in US automobile assembly plants as the basis for the research, they demonstrate the correlation between bad weather and poor productivity, even in industries that are not ‘climate-sensitive,’ such as manufacturing and services.
Does bad weather reduce productivity within factories and other workplaces? This is the question that the latest research from Marcelo Olivares of the Columbia Business School and Gérard Cachon and Santiago Gallino of Wharton addresses. The researchers used inventories and productivity statistics covering 10 years for 64 US automobile assembly plants, and matched them to weather station data. The results were conclusive: carefully controlling for non-weather-related factors, the researchers showed an unequivocal decrease in productivity as a result of extreme weather events. For example, six or more days of 90-degree temperatures within one week result in an 8 percent drop in production. Just one additional day of high winds has the same impact on productivity. And six of more days of rain within a week reduce production by 6 percent.
In fact, any kind of exceptionally bad weather – the researchers developed measures of poor weather based on rain, snow, and wind as well as heat and cold – will reduce productivity at an average per-week rate of 1.5 percent, according to the research.
The research also proves that a production lapse of a few days can never be made up in the short term and rarely in the long term. And the impact of the lapse cascades throughout the organization. In a follow-up study of automobile dealerships, the researchers measured how less production means delayed deliveries to dealerships, which means lost sales.
Mark Twain once quipped that everybody talked about the weather, but nobody did anything about it. Although we still cannot change the weather, there is a much greater opportunity to prepare for the consequences of weather today than in Mark Twain’s time. The results of this research, although focused on automobile production, has implications for all manufacturing. Specifically, corporate executives as well as plant managers should:
Plan for interior productivity dips: Most plant managers already anticipate that poor weather will impact deliveries, and plan accordingly. They might also anticipate some absenteeism in the case of extreme weather events, such as a snowstorm. However, they probably underestimate the full impact on manufacturing productivity - an 8 percent drop in production in the course of a week has serious consequences for all stakeholders in the plant.
Include weather in strategic planning: Weather varies greatly from location to location. Recognizing that even supposedly non-sensitive industries and activities can be impacted by severe weather, it may be worthwhile to add weather - in addition to the usual suspects, such as labor costs - to the criteria of such strategic decisions as the location of new plants.
Include weather in operational planning: For example, some production models may no longer be as effective as they once were simply because of the disruption caused by the weather. Thus, the famous Toyota lean production model is focused on eliminating waste - and one way to achieve less waste is to operate with low levels of inventory. While this may be an effective model in terms of efficiency and cost, the fact is that low inventory puts the company at a greater risk of disruption from weather.
Further study is required to pinpoint more specifically how companies can adapt their management approaches to extreme weather. One idea, for example, is to hedge against weather delays by diversifying production and suppliers geographically.
Although the full impact of climate change continues to be debated - scientists, for example, are still undecided on the effect of climate change on wind - scientists are nearly unanimous that climate change will lead to more and more extreme weather events. Business leaders cannot ignore or underestimate the consequences of such events.
“Severe Weather and Automobile Assembly Productivity,” Marcelo Olivares, Gérard Cachon and Santiago Gallino. Working Paper, 2012.
“Climate Change and Productivity,” Marcelo Olivares, Gérard Cachon and Santiago Gallino, Ideas at Work, 29 April 2013.
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