April 7, 2015

Planning Supply and Demand in the Supply Chain: Managing Predictable Variability - Review Notes

Chopra and Meindl's book, Supply Chain Management: Strategy, Planning, and Operation, is a comprehensive introduction on supply chain management.


For certain products, there is seasonality in demand. Therefore the systematic component of demand forecasted will vary over the periods in a planning horizon. The firm can take certain actions to change the variability in demand and then plan for supplying to varying demand using a more stable capacity.

The main theme in this chapter is that variability in demand should not be allowed to pass through to operations (own manufacturing) facilities and supply facilities. It is not an optimal policy to pass forecasted variation in demand to supply chain. Actions to alter the demand through price discounts and various promotions need to be considered along with the supply variability (increase or decrease of supply) actions to maximize the profit. Therefore supply chain managers and marketing managers have to coordinate their actions to create an optimal plan for managing the variable demand through both demand management and supply management actions. The authors say "preempt variability in demand rather than passively cater to it".

Managing Demand


Attempts are made to change the demand in certain periods through short-term price discounts and trade promotions.

Such promotions and price discounts give extra sales during some period due to market growth due to lower price, buyers doing forward buying (buying requirements are future periods now) and substituting the demand for competitors' products. (This topic will be discussed in more detail in text books related to sales and marketing.)

Planning Supply


In planning supply for the predictable variable demand, variations in supply capacity, inventory, subcontracting, and backlog filling are used by firms.

Capacity is altered by in certain periods by using time flexibility of workers, use of seasonal work force, use of subcontractors to supply peak demand, use of dedicated facilities and some flexible facilities, and having flexible production processes.

Inventory is used to build inventory during slack periods to sell during peak periods. Also, using common components across multiple products could help to manage demand fluctuations in individual products.

References

Sunil Chopra and Peter Meindl, Supply Chain Management: Strategy, Planning and Operations, Prentice Hall, 2001. Supply Chain Management: Chopra and Meindl - Book Information and Review.

Originally posted on Knol

 http://knol.google.com/k/narayana-rao/predictable-variable-demand-managing/2utb2lsm2k7a/1364

updated:  7 April 2015,  26.1.2012, 9 Dec 2011

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