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Demand volatility is a reality in many industries, from discrete manufacturing to process and defense industries. Not only are retailers serving end consumers facing volatile demand, but this volatility is being passed on to manufacturers and distributors at different stages of the industry value chains. Many factors contribute to demand volatility, including increased customer choices, product customization, rapid technological improvements, global competition and upstream supply fluctuations. From high tech to retail to chemical industries, this is a challenge faced by companies across all verticals. Managing volatile demand in a cost effective manner can lead to significant benefits for a company from lower supply chain costs to improved customer service levels. More importantly, managing volatile demand efficiently can be a huge competitive differentiator for companies.
Supply chain processes were traditionally designed to be push-driven. The transition to becoming pull-driven or demand-driven is slowly occurring in many industries. Managing volatile demand efficiently in a demand driven environment is a significant challenge and requires companies to employ robust supply chain strategies. Often the focus tends to be on one area of the supply chain (e.g., inventory optimization) without consideration of all aspects of the supply chain, resulting in sub-optimal results. In this paper we outline comprehensive supply chain strategies that companies can adopt to manage volatile demand efficiently.
Strategies to manage volatile demand efficiently include:
1. Supply Buffer Management
2. Inventory Buffers
3. Capacity Buffers
4. Cycle Time Reduction Strategies
5. Postponement Strategies
6. Collaborative Processes
While demand volatility is a reality faced by companies across many industries, by employing the right supply chain strategies companies can efficiently handle volatile demand. Key supply chain strategies required to manage volatile demand are outlined in this article. All strategies outlined here may not apply to all companies--selection of the right strategies to adopt would vary. Adoption of the strategies should be based on a careful consideration of supply chain attributes, supply chain costs, competitive considerations and implementation costs.
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