HomeInternational TradeStriking the Supply and the Demand of a Supply chain

Striking the Supply and the Demand of a Supply chain

What is Striking the Supply and the Demand.

Striking the Supply and the Demand is the process of balancing supply and demand. Or the equilibrium of supply and demand.

Compared to the good old days, the needs and the wants of people have changed and it is more complex in the present scenario. Based on the requirements of the customers the supplier has to cater to the demand on time without interruption. Push supply strategies are no longer valid for every business segment and suppliers have to follow the pull strategies.  

 Companies need to invest in inventory management systems and strategies as inventory is a crucial component in striking supply and demand. VMI would be a good selection thus companies have to evaluate in in-depth as VMI exposes the company’s sales levels to the supplier more. Over inventory and under inventory are always a cost to the company in both monitory and non- monitory terms, which we have talked about in-depth in different articles.

Having inventory is a must to meet the desired service level of a company. Thus, inventory is not the only contributing factor to maintaining service quality.

Through inventory management, the business concentrates on identifying the correct volume of inventories to be stored. If a company keeps more and more supplies unnecessarily it will create high costs and need a lot of money to get the inventory. Furthermore, if the suppliers keep low inventory or under stocking, will cause stockouts. On the other hand, stockouts always make the customer dissatisfied. If the product has an elastic demand, the possibility of the customer shifting to a competitor’s product is high.

Hence, striking the supply and demand is mandatory to retain in the market.

Importance of Striking the supply and the demand

In a supply chain, the supply represents the availability of goods and services at the supplier’s point to cater to the product and the volume the customers demanded. The demand represents the customers who desire to procure goods and services from the suppliers. Both forces are influencing each other, and it is necessary to pay attention to both forces.  If the demand is high the suppliers need to provide the supplies adequately and if demand reduces should control the supply.

Even though gauging the fluctuations within the supply chain is difficult, both the supplier and the customers should be more aware of the variations in the demand and supply. When a customer is required to procure a product, the product should be available at the market where the demand arises. If the products are not available on the market at the moment it is required by a customer, then they may be moved to a substitute product or to another supplier.

The danger in over inventing in the supply force

To produce or procure raw materials or finished goods for production/ re-sale, the suppliers have to invest in inventory which blocks the company’s cash flow.

 Thus, if the demand is less than the supply, suppliers may tie up their funds including the opportunity cost of investing in inventory. Further, when the company keeps progressively more stocks, then the inventory holding cost is going to be high. It needs to pay more attention to handling and managing the inventory.

In a supply chain, most of the products are associated with an expiry date. Even the products which are not associated with an expiry date still may have defects if they keep it for a long time due to lack of demand. In such times, products may deteriorate or are no longer usable.  Hence companies have to adopt warehouse management systems including FIFO (First In First Out) methods.

A blocked cash flow restricts the liquidity of a company. And investments in other areas to generate a cash inflow. Most companies go for short-term fixed deposits to generate additional revenue for the company with the available cash. The more the investment in inventory less the opportunity for companies to go for short-term fixed deposits.

The dangers in under inventing in the supply force.

Not establishing demand forecasting techniques and strategies to cater to the market fluctuations, companies may leave out with less of products to be sent to the market. With a lack of supplies, the company may fail to meet the delivery commitments. This will result in production being held up due to the unavailability of the raw materials in one way. In another way, the supplier fails to meet customer demand.

The company either has to bear the loss of sales and the consequences arising afterward or bear extra costs to speed up production and transport bearing high costs.

Instead of buying materials in bulk which benefits the company through discounts/low per-unit costs, buying small quantities to meet sudden demand changes costs the company more. If the raw materials are seasonal items, having inventory in advance is necessary. Or the material supplier gets the upper hand to increase the material prices as the company is left with no choice but to procure in order to satisfy customer demand.

Failing to meet customer demand will shift customers to a substitute or a competitor’s product. In addition to that as a result of sagging the customer base of a company will indirectly impact profits and the brand image of the company. 

Striking the Supply and the Demand of a Supply chain
Striking the Supply and the Demand of a Supply chain

How to Strike the Supply and the Demand.

The main rationale behind balancing the supply and the demand is demand forecasting and capacity planning. Under demand forecasting, the supplier has to clearly identify their targeted customers well and the changes in their preferences.

Based on the season, the month of the year, and the time of the date the customer’s favoritisms are changed from time to time. Hence before the requirement arises for the supplier point, they should identify the trend in the purchasing patterns of its customers and forecast accordingly. For that analyzing the historical data becomes essential. In today’s context, most of the companies are dealing with concepts like big data and advanced forecasting software to get more precious information regarding the demand fluctuations within the supply chain.

Since customer demand is fluctuating, the supplier must be aware of and react accordingly to sudden changes in demand.

Investments in inventory management systems, warehouse management systems and data analytics are much needed in striking the demand and the supply.

If the companies have the potential to hire competent people or invest in demand and supply forecasting it helps for proper planning with accurate forecasts to balance the supply and the demand. Further, this will reduce the echelon inventory, benefiting the whole supply chain of a product. Moreover, companies can focus on strategies like promotion, discounts, and consumer-friendly services when the demand is low to generate more sales.

Striking the Supply and the Demand- In Conclusion

In a supply chain, the demand and the supply tend to fluctuate from time to time. By considering those fluctuations the suppliers and the customers are impacted. Thus, striking the supply and demand is deemed necessary. The market may suffer from oversupply and undersupply due to the rapid changes in demand.

 Low inventory will cause out of stocks where customers are frustrated. On the other hand, with the purpose of catering to the ever-increasing demand, if the supplier keeps more and more products without any forecast or supply plan it will be also a loss to the companies in terms of the cost of having excess quantities.

Since both situations are unfavorable for functioning the supply chain without any interruption it is important to strike the supply and the demand. Most companies tends to use advanced technological advancement to properly manage and forecast the demand and supply.

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