In a fiercely competitive global market, demand fluctuations pose ongoing supply chain risks. Shifts in demand can lead to bigger issues like inventory understock, overstock, and supplier capacity risks. So, how can companies navigate ever-shifting demand?
Many companies turn to sophisticated tools and algorithms. However, consumer demand is volatile, and statistical forecasting models have fundamental limitations. While it takes more time, the key to navigating shifting demand requires a bigger investment. The true indicator of agility and demand responsiveness lies in the actual design of your supply chain.
Thus, the question is: how do companies organize operations to respond to unanticipated fluctuations in demand? In this post, we check out four ways your organization can develop a more flexible, agile, and demand-responsive supply chain.
1. Utilize Range Forecasting
Forecasting for a single demand figure can be unwieldy and inaccurate. That’s why resilient organizations project several potential outcomes to prepare for changing market conditions and increase supply chain flexibility. This process is also known as range forecasting.
Range forecasting can be used to inform supply contracting terms and contingency plans. By establishing a range of uncertain (yet potential) outcomes, a company gets a better idea of how to respond when demand is at either the high or low end of the range. With a fleshed-out range forecast, companies can be confident that they will sell at least the low end of the range while being prepared to sell at the high end of the forecast range.
Range forecasting is also useful for more than just modeling future demand volume. A company can develop a range forecast for future supply volumes and prices for its variety of products as well.
Example of Range Forecasting in Supply Chain
Suppose Company X compiles all the possible outcomes for a new product, then assigns probabilities to each possible outcome with more than a 15% likelihood of occurring. Company X can then develop contingency plans according to these outcomes. By utilizing range forecasting as such, Company X’s planning effectively covers nearly 80% of the possible outcomes, thereby increasing its flexibility and resilience!
2. Establish Flexible Supplier Contracts
Companies can use range forecasts to establish flexible contracts with suppliers and manufacturers. In addition to aiding process integration, flexible contracts spell out the range of acceptable supplier performance and grant a company the flexibility to ramp production up or down as demand fluctuates. Flexible contracting allows companies to specify to their suppliers how long it should take for the supplier to ramp up production to meet demand.
Example of Flexible Supplier Contracts in Supply Chain
For example, a company can embed flexibility in its contract by specifying that its suppliers should be able to ramp up production by 50 percent within two weeks and by 100 percent within a month’s notice. Contracts with this level of specificity encourage the supplier to think in terms of multiple demand scenarios.
Learn more about why supplier collaboration is a win-win strategy in this blog.
3. Implement Strategic Multi-Sourcing
Multi-sourcing is a strategy where an enterprise chooses to procure a component or material from multiple, unique suppliers. Conversely, single-source procurement (with only one supplier) is prone to added revenue risks, increased bottlenecks, and diminished flexibility in responding to demand fluctuations. Unlike single-source scenarios, companies that use multi-sourcing can spread demand across numerous suppliers that collectively have higher capacity.
Multi-sourcing leverages the respective strengths and competencies of supply chain network partners to achieve greater responsiveness to market needs. With an appropriate multi-sourcing strategy, companies can prioritize suppliers according to different stages of the demand range forecast and activate those suppliers when needed.
Example of Strategic Multi-Sourcing in Supply Chain
Let’s say Company X manufactures computer monitors at two different plants, one in Calgary and one in Thailand. While its Calgary plant is more flexible, speedier, and closer to the market, the Thai plant has lower manufacturing costs. Company X may assign its more predictable, high-volume manufacturing to the Thai plant while reserving the Calgary plant for the uncertain segment of the demand range. The Calgary plant could satisfy temporary demand surges and be used during a particular product’s end-of-life, when demand begins to dry up and grow more uncertain.
4. Use Supplier Capacity Management Tools
Supplier Capacity Management is the process of proactively finding, evaluating, and mitigating risk associated with your company’s ability to source goods from suppliers. By managing supply capacity, organizations can ensure that supplier capacity at a part-level is able to consistently meet fluctuating demand forecasts. Supplier Capacity Management tools can help companies proactively manage supplier capacity more efficiently.
Companies must take a few steps to set up these management systems. The first step is to map your supply chain and survey suppliers for capacity information. This includes details like total capacity, line capacity, and allocated capacity. Resilinc has a Supplier Assessment Library of ready-made assessments, such as supplier capacity assessments, to make this process easier. Working with Resilinc, companies can send surveys to thousands of suppliers in minutes!
Next, after you collect this information, you can start to analyze high-risk suppliers and parts based on your risk thresholds. If you collect data using Resilinc’s supplier assessments, Resilinc runs analytics to highlight problem areas, calculate scores, and anticipate trends so your experts save valuable time and resources. From there, you’ll have data that is ready to share with your team to make quick, meaningful decisions about your supply chain.
Finally, alerts, mitigation workflows, and 24/7 AI-powered event monitoring services like Resilinc’s EventWatchAI can facilitate ongoing capacity management excellence. Learn more about why supplier capacity management is mission critical in this blog.
Start Developing a Demand-Responsive Supply Chain
Demand variability and inventory planning are fundamental challenges facing supply chain operations. Both these challenges require strategic supply chain design initiatives. While too much product equates to high inventory carrying costs and product value depreciation, too little inventory can mean lost sales and customers.
Considering the limitations and inaccuracies of conventional statistical forecasting models, companies can minimize forecasting errors by designing more responsive and agile supply chains. Through using range forecasting, flexible contracting, strategic multi-sourcing, and tools like Multi-Tier Mapping and supplier assessments to gain visibility to supplier capacity—companies can manage risks more proactively and responsively.
Learn more about Resilinc’s Supplier Assessment Library here.