How to match demand to supply

The balance between demand and supply is as delicate as it is a critical issue in supply chains. Logisticians around the globe are well aware of the savings that can be achieved by maintaining this balance, and of the disasters that can occur when one of the two is far superior to the other.

Last week we saw how we can try to optimize supply to meet demand. In this article we are going to turn the tables and collect some of the methods used to ensure that the demand is the one that adapts to the supply capacity that we have (either by having less supply than we would like or by having a surplus of supply that we need to sell).

Manipulating the relationship between demand and supply

Among the most used tools to change demand are:

vary the price

Price has always been an important variable in the demand for products. Therefore, it is logical that modifying it is something helpful when we want to adjust our demand levels, either upwards or downwards (in the event of a shortage of supply, we may want to sell less temporarily without interrupting the supply). However, getting it right is not as easy as it seems. For this tool to be successful, we must know our client, our brand and our product very well.

How sensitive is our client to price changes? Perhaps a luxury product can better accept a rise, but in a product of basic necessity or in a commodity, we will be running the risk of scaring off the customer. Although even price variations are frequent in our day-to-day shopping, depending on seasonal products -that is, products with more supply-. However, in these cases the buyer has assumed the reason for the price changes; Maybe in your case you won’t get the client to accept this variation, so you should be careful.

In the same way, our brand is sensitive to changes in price and we can send wrong signals to the market and disposition our company (that people lose confidence in us as a brand with good quality/price ratio or that we aspire to be a brand prestigious and we are perceived as low-cost). And finally, we must remember that we are not alone. We operate in a market full of competition and we will have to be aware that our price changes will face them and the possible reactions of our competitors.

Modify our seasonality

It is very common for companies and sectors to have parts of the calendar highlighted in red, in which a significant part of their sales are concentrated. Companies are delighted to sell more, but this concentration is accompanied by difficulties (logistics, supply, workload…). This makes it common for companies to seek measures to alleviate them.

One of them is to extend the duration of these seasonal periods, as in the case of Christmas. Firms and shopping centers try to start their Christmas campaigns as soon as possible so that the increase is less marked. This causes less productive and logistical tensions, in addition to reducing the extra costs that can be derived from these sales agglomerations (overtime, excess stock to meet demand, etc.).

Companies also look for this through customer information. Notifying you in time of the proximity of complicated dates, of the remaining stocks or those that are going to be able to be acquired. Thus they encourage a premature start of purchases and facilitate their response.

Introducing new artificial seasonality peaks is a variant of this technique. The idea is basically the same: to flatten the demand graph and distribute it better throughout the year. This is pursued through promotions, with the introduction of new products, with the holding of recurring events each year on those dates with low seasonality (such as sales), etc.

Achieving sales outside of periods of high demand is especially important for those companies that have very high fixed costs and an inflexible cost structure. While there are companies capable of varying their costs a lot (if I don’t sell, I don’t spend) there are others for which this is more difficult to achieve and periods of low demand do them great harm. Stopping production and logistics, starting it up and suffering great fluctuations in demand during the year is more complex and usually less efficient than maintaining more stable work levels, also making the balance between demand and supply easier.

Much of the heart of logistics lies in the relationship between demand and supply.

Finally, there are companies that use the seasonal periods with less movement to deal with activities that they would have problems carrying out during these peaks: worker training, equipment inspection and repair, etc. Although it does not specifically serve to achieve this adaptation between demand and supply, it is useful to optimize the resources available in the company.

Modify services and products

Changing what we offer to the market is another way of trying to manipulate demand at our convenience. There are many ways to do this and, perhaps, cinemas are one of the examples that have tried the most things. Beyond the traditional function of showing films, there are many rooms that have hosted operas, company events, broadcasts of football matches, incorporated play areas for the little ones, video game games, etc. This attracts demand outside of its usual target and, also, from its temporary peaks (in this case, on weekends).

Some of the modifications are, however, more subtle. Changes in promotions or advertising to sell more or less of a specific product, creation of offer packs or new packaging -food is an expert in this-, opening at new times or locations… it is important to remember that at this point The same precautions apply as when we talked about price changes. We have to keep in mind that customers can quickly get used to new services and claim them as perpetual and not as a mere temporary change that, perhaps, no longer benefits us as it did in the beginning. In addition, we must take into account the necessary changes in our way of working or producing that these actions entail, since each alteration may imply new costs.

With these two articles we have reviewed some of the reasons and solutions behind the tension between demand and supply. And it is that in the relationship between both concepts is a large part of the heart of logistics. Demand forecasts, the just-in-time philosophy, lean models, the use of big data, stock reduction, speed in delivery times, traceability… All of them are aimed in one way or another at solving this problem. problem.

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Khaterine William

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