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Tight rope walking: The supply and demand balance

Most of us in SCM have always been intrigued by the balancing act of supply and demand. Whereas production, quality, suppliers, warehouses, logistics and Engg (new product development) groups have been groaning about their constraints for replenishing the market requirements, the markets have never ever been constant.  So, when the markets show sudden changes or a gradual shift which exerts pressure on the "demand", the SCM professional has to devise ways and means to see how they can maintain the balance.

One of the ways the SCM professional is able to provide the balance is to relax the constraints from the supply side. To take an example, when the demand shows sudden increase (demand variation), the SCM professional would do any of the following to meet the market requirement:
• Increase working capital by enhancing inventory levels to feed the risen demand
• Reduce the sourcing lead time sourcing in bulk
• Manage capacity constraints by shifting capacities for the specific orders
• Avoid logistics constraints by booking logistics capacities at premium or through LTL load shipments
• Circumvent   distribution networks through direct shipments to customer POS

These short-term tactics would be very beneficial to meet the immediate requirements.  But there is no innovation in adopting such tactics. So, to implement these, requires regular fire-fighting, which most SCM professionals would be seen around doing day-in-and -day-out.


The negative aspects of such working culture of SCM professionals have some pitfalls:
• They would remain as helpless officers, always tethered to the dependencies of other supply chain functions, and cursing their "thankless" jobs
• They would be busy through-out, meet "drop-dead dates", but would hardly ever get noticed for any exemplary work done
• They would incur "exigency costs" and would always be spending time on exception approvals, as if the bottom-line impact is a result of their misdeed

There exists a third dimension to the demand and supply blocks, which determines the level of leverage available to the SCM professional. For an MTS strategy, where the replenishment is a complete "Push" strategy, the supply block constraints are taken for granted, and shipments are made to orders based on the demand block requirements.  In an MTO strategy, there are few constraints like minimum order quantity, capacity constraints and working capital which can be "managed" to meet the market requirements. And finally in a DTO strategy, almost all the supply block constraints can be fully managed, to meet market requirements. This complete pull strategy hardly has any constraints, except for the design & regulatory requirements. This "Order-fulfillment strategy" acts as an important fulcrum to maintain the balance.

This is what the SCM professional needs to understand very clearly to manage costs, resources and time. Depending on the weight of the demand block requirements, they can shift the fulcrum to create additional leverage in the supply block constraints to maintain demand-supply balance. In most enterprises and for most products the purchase and manufacturing are levers with same balancing impact. But for engineering products, which are very heavily loaded to bought-out supplies, purchase provides additional leverage for sourcing lead-times, capacities and product configurations.

Let us take the example of the beverage industry to check how they manage the demand-supply balance by conditioning their supply chain using the push-pull order fulfillment strategies. In a bottling plant for aerated beverages, during summer season when the demand is huge, the plant would be working on an MTS system. The fulfillment would be a complete push strategy to maintain market coverage. This is possible since the inventory consumption is huge. But in winters, when the demand diminishes and dealers are averse to keeping stocks, the plant should adopt an ATO system.  So the bottles would be selected based on the liquid to be filled in them, with quick change-over cycle times. In this way fragmented demand in winter would be fulfilled. In certain canteens of large corporate or single large orders for special events, where there would be constant demand, but with specific non-standard printing on bottles (for example the corporate logo along with the brand-logo of the drink), a MTO system has to be adopted.  Again when introducing a new product, where there is uncertainty of market acceptance and regular feedback is required for meeting the customer choice, the bottling plant would be looking for a "beta-test". This is more of a DTO system, where constant feedback is sought after test-launch of a product, and a second launch is injected with design change in flavor & color as well as changes in distribution and channel tiers. So it is essential that SCM professionals monitor demand patterns and make necessary shifts in "fulcrum" to maintain balance with lesser "fire-fighting".

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