Perhaps you too are familiar with the curve balls of life… When we don’t get what we expect. We strategize and we make plans, yet from time to time, life has a way of surprising us…
Flip this in supply chain management where you predict a certain demand outcome but something quite different from your prediction happens.
This is what we call Demand Variability, a situation where there's a difference between an organization's expected demand outcome and the actual customer demand. Put simply, customers aren’t ordering as you expected them to.
To illustrate this better, imagine a situation where an organization expects demand to go up and has taken steps to take in more supplies to maximize sales. However, if the actual customer demand is below the prediction, this will lead to excess stock, an increase in storage costs, and dead stock among other issues. A classic example would be face masks which were in high demand during the recent pandemic but demand dropped drastically once the requirement for face masks was let go…
Similarly, it is also possible that an organization isn't expecting an increase in customer demand, but suddenly, customers' demand shoots up. In this case, the organization runs the risk of losing sales especially if they are not able to quickly manage and respond to the influx of demand.
Demand variability can pose a big risk to any organization if not managed properly. But before we look into how to deal with this, let's identify some factors that cause demand variability. These are; the complexity of demand, unpredictable customer behavior, size of suppliers or market, and synergy between suppliers and distributors.
So, any organization that wants to minimize demand variation should be flexible in its approach and plans. Here are other ways to help you deal with demand variation;
📍Build A Positive Relationship with Suppliers: You must be able to carry your primary suppliers along on plans and projections. This enables them to respond quickly to changes in supply, keeping your supply chain agile.
📍Have Other Supply Sources: There would be the need for you to explore other suppliers too especially when there's a sudden spike in customer demand. Having standby options for such situations is very important.
📍 Reduce Lead Times: Customers want what they want as quickly as possible. Therefore, you should continuously enhance delivery timelines by reducing lead times. Such plans in place will help you respond quickly to changing demand as it occurs.
📍Create Demand and Supply Visibility: To do this, you need to evaluate your entire supply chain from procurement of raw materials to when a product gets to the end user. You can only improve what is known and visible.
📍Use Demand Forecasting Software: Forecasting software helps you gather both past and current sales data which you can use to predict customer demand trends and plan adequately too.
Supply Chain management just got easier. To learn more about supply chain management and procurement processes, sign up for a course at academy.efemini.com
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