Supply Chain Strategies to Manage Volatile Demand

As companies transition themselves to become more demand-driven, ability to handle volatile demand becomes even more of a critical necessity


Capacity Buffers: A more attractive alternative to inventory buffers in many industries is the use of capacity buffers. Through internal or external resources, capacity buffers provide more flexibility to companies to manage unexpected variations in demand. External subcontractors are increasingly playing the role of providing buffer capacities in several industries. Capacity buffers can be used to manage unexpected surges in demand not only for unplanned demand but also for planned demand such as with an urgently planned promotion to counter a competitor's promotion. Capacity buffers also come at a cost and the tradeoff between the cost of maintaining buffers and the cost of missing service targets needs to be carefully evaluated before selecting the option to use capacity buffers. In addition, use of capacity buffers through subcontractors requires the use of strong partnership approach with sufficient quality measures implemented to ensure that subcontractors can meet the quality standards of the company. In industries such as semiconductor the practice of maintaining capacity buffers through the use of subcontractors has become increasingly prevalent — given the short product lifecycle, this practice has proven to be highly critical for semiconductor companies to manage volatile demand.

Cycle Time Reduction Strategies: Reducing total supply chain cycle times is critical to speed up the flow of information through the supply chain. Companies with shorter cycle times can transfer information quickly across the supply chain thus responding faster to changes. This improves the ability of companies to respond quickly to changes in demand. Total supply chain cycle time is the cumulative sum of the physical cycle time (production time and transportation time) and planning cycle time across the supply chain — strategies to reduce cycle time should consider both these components of cycle time. Lean manufacturing initiatives have been proven to help companies reduce cycle times by eliminating non-value added activities in the supply chain. Planning cycle time can be reduced by employing advanced planning solutions which can automate several plan generation activities and also provide analysis capabilities to help planners quickly make decisions. Use of constraint based planning approaches, which are embedded in most advanced planning solutions, can help companies identify and resolve bottlenecks ahead of time thus helping reduce cycle time.

Postponement Strategies: Strategies to postpone production include shifting from MTS (Make-to-Stock) production to ATO (Assemble-to-Order) production. By retaining inventory at a sub-assembly level and assembling product only when a firm customer order is received, companies achieve more flexibility — this is applicable in cases where a sub-assembly (or sub-assemblies) can be used to make multiple finished products. Such a shift enables a company to be more flexible and better respond to changes in demand. Companies across several industries are already evaluating such a shift as part of their overall supply chain strategy. However, a shift from MTS to ATO strategy may not be the right strategy for all companies. The decision to implement a postponement strategy should be based on careful consideration of a company's supply chain characteristics such as commonality of sub-assembly products, length of production cycle times, customer lead time expectations etc. While such a strategy shift can significantly improve a supply chain's performance in its ability to respond to changes in demand faster, implementation costs could be a deterrent. Shifting a company's strategy from Make-to-Stock to Assemble-to-Order can be very costly to implement since it requires changes to supply chain activities (production, transportation etc), processes and enabling systems.

Collaborative Processes: Responding quickly to changes in demand requires fast information flow not only within a company's four walls but also with a company's suppliers and partners. Collaboration with customers enables companies to receive demand information from customers sooner and more frequently thus enabling them to respond faster. Similarly, collaborating with suppliers enables a company to send forecast data to its suppliers faster, enabling the suppliers to plan their supply chains and respond faster to demand changes passed on. Establishing collaborative processes with suppliers is especially critical for companies for whom a significant part of the supply chain is outsourced. Several companies are embarking on implementing such solutions to enable collaborative processes with their production, logistics and distribution partners. Collaborative technologies enabled by the Internet can help companies across the globe share information within a matter of seconds. Visibility to supply chain events can be transferred to all supply chain partners, thus helping them all work together to achieve the goals of efficiently meeting customer demand.

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