It’s no secret that supply and demand planning is one of the most complex and difficult aspects of supply chain management. In order to ensure an efficient and fluid supply chain, it is important to account for both supply and demand; however, this is often easier said than done.
Ensuring that your supply chain can meet customer demand while managing inventory and production levels can be daunting. Here are five of the biggest challenges to overcome in planning supply and demand in the supply chain.
1. Dealing with Disruptions
The COVID-19 pandemic proved to be a crucible for many companies. Those who could not adapt to the quickly changing circumstances of the “new normal” didn’t survive, and those who did survive paid a high price. In the United States in 2021, supply chain disruptions cost organizations an estimated 228 million dollars and an average of 184 million dollars for businesses worldwide.
An Ernst & Young survey conducted in late 2020 revealed that only 2% of companies surveyed said they had been prepared for the supply chain disruptions caused by the pandemic, and 72% said their businesses had been negatively affected.
Global pandemics aren’t the only cause of supply chain disruptions, however. Natural disasters, geopolitical conflicts, and economic woes can all cause challenging obstacles to planning supply and demand in the supply chain.
One strategy organizations can utilize to increase their scope of suppliers is supply chain diversification. Having additional suppliers means you can mitigate the possibility of backorders and significantly delayed shipping times if one supplier cannot meet your needs.
In addition, supply chain diversification can allow organizations to reduce costs by finding suppliers that better meet their budget, an especially important consideration now that shipping and fuel costs have skyrocketed in recent years.
2. Meeting Current Demand
In early 2020, pictures of bare grocery store shelves were commonplace. Customer demand had jumped to unprecedented levels for certain products, such as toilet paper and bread flour, and many businesses couldn’t keep up with the unexpected demand.
In the ensuing months, demands for other products – such as cars, bicycles and bicycle parts, home fitness equipment, and work-from-home supplies like desks and office chairs – also intensified.
The challenge comes in having a flexible supply chain that can adapt to fluctuating and accelerating demands and employ the power of automation to augment and improve options for fulfillment, enabling you to commit to superior customer service and increase customer satisfaction even in the middle of unpredictable circumstances.
3. Forecasting Future Demand
Inventory and supply chains are planned and managed with the expectation of future demand. Proper forecasting of future demand is essential to maintaining an efficient and effective supply chain. Inaccurate forecasting can lead to over or under-stocking, leading to lost sales and increased costs.
Therefore, businesses need to use reliable forecasting methods to ensure that their inventory is best aligned with customer demand. Companies can use many different forecasting methods, and each has its own strengths and weaknesses. The most appropriate forecasting method for a company will depend on the company’s business model, product mix, and customer base.
The most common method for forecasting future demand is trend analysis, and this method uses historical data to identify patterns in demand and predict future trends. Another common method is regression analysis, which uses historical data to identify relationships between different factors and predict how changes in one factor will impact demand.
Other methods that can be used to forecast future demand include qualitative methods, such as focus groups and expert opinions, and quantitative methods, such as analysis of revenue data, financial reports, sales figures, and website statistics.
Unfortunately, no method of demand forecasting is infallible, and it can come with its own costs. The key is finding an efficient and cost-effective method that works for your needs most of the time and that enables you to be flexible with planning supply and demand in your supply chain.
4. Balancing inventory and supply
Maintaining the correct level of inventory and supply is essential for any business, but it can be difficult to balance in supply chain planning. Too much inventory can lead to costly storage fees and lost sales opportunities, while too little inventory can lead to missed sales and stock-outs.
One of the biggest challenges in balancing inventory and supply is the ever-changing global economy. Businesses must be able to adapt quickly to changing market conditions and material and component shortages to maintain a competitive edge.
Another challenge is the shortage of qualified workers, which has resulted in a shortage of skilled employees in inventory and supply management. Companies must offer competitive wages and benefits to ensure that they can employ those with the necessary skills to manage their inventory and supplies while planning supply and demand in the supply chain.
5. Understanding and predicting lead times
Lead times are a critical part of the supply chain and can significantly impact a company’s ability to meet customer demand. In order to understand and predict lead times, it is important to understand the different types of lead times and how different factors impact them.
There are four types of lead times: order lead time, production lead time, delivery lead time, and stockout lead time. Order lead time is the time it takes to place an order and receive it from the supplier. Production lead time is the amount of time it takes to produce the product. Delivery lead time is the time it takes for the product to be delivered to the customer. Stockout lead time is the amount of time it takes to resupply popular items that have sold out.
Manufacturing delays, shipping delays, and inefficient workflow management can all contribute to excessive lead times. If the latter is your issue, it’s imperative to invest in reliable logistics management software that can help increase efficiency and reduce waste in your supply chain operations.
CloudLogix can simplify your supply chain by providing increased visibility to shipping costs, inventory, receivables, and vendor management. Let us help you with your planning supply and demand in the supply chain. Contact us to schedule a demo today!