Three Common Drivers of Demand Risk

December 10, 2013 · READ

As every business owner learns in school, achieving a balance between supply and demand is paramount to the success of any company. Predicting demand, however, can be a risky proposition;  it requires accurate forecasts from the firm in question. Failure to accurately project demand can result in lost sales due to insufficient inventory or frozen capital in the form of excess product. In many industries, properly managing demand risk can be the difference-maker between suffering financial losses or making significant earnings.

Spend Matters recently noted three of the most critical drivers of demand risk:

1. Over/Under Specification
Personalized products can be key in winning over customers. If businesses can offer an item in a variety of shapes, sizes, and colors, then they can increase their ability to get the right product to customers. However, this can also create a logistical nightmare for businesses and result in capital getting locked up in slow-moving inventory. Customizing goods or services too much raises costs and limits supply options in the long run.

2. Poor Communication Pan Companies
Accurate forecasting is key to managing demand risk, but what happens when lines of communication are poor? It greatly complicates the forecasting process. It’s not unusual to see one department promising to hit a certain delivery date, while the other knows they can’t deliver in time for that data. External collaboration with third-party vendors and suppliers only exacerbates the situation even further.

3. Demand volatility
Demand can change seemingly at the drop of the hat, and in high-volume industries, this can be disastrous for making accurate projections.

“Predictive supply chain modeling can help address demand volatility concerns,” the news source added. “But companies must incorporate overall volatility risk into their supply management decisions and choose suppliers in part based on their ability to scale up – and scale down – to real-time demand needs.”

With demand being such a central threat to the success of many companies, company executives need to start focusing on improving efficiencies in three areas: integrated planning, supply risk management, and demand risk management. According to Supply & Demand Chain Executive, better monitoring in these areas will help brands achieve that balance between supply and demand they need to be successful.

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