Question

GLOBAL MACROTRENDS AND THEIR IMPACT ON SUPPLY CHAIN MANAGEMENT

You’ve recently been hired as the production manager for a large consumer packaged goods company. In your first meeting with the sales manager, the manager said that production has always made more product than the sales force could move. He tells you that it would be much better if the sales force could create more demand than the company could supply. What would you tell the sales manager? Is it better to have more demand than supply?

(2-3 paragraphs please) (5-6 sentences each)

Answer 1

1) We can agree with the sales manager to an extent. From a marketing point of view more demand for a product than its total production volume eventually increases the price of it. So the company will be getting a higher profit margin. More demand means, the sales team has to take lesser efforts to achieve their monthly/quarterly target. Due to the higher demand, the possibility of backorders are also there. So theoretically a company's present situation and future may look perfect. It might work, at least for a short period. But if the definition of 'more' demand means 'too much' demand then it will be a problem.

2) It is a fair idea if you are into manufacturing a patented/super-exclusive product. But if you are just another manufacturer in the market, then it may lead you to trouble. The reason is quite simple, because when there is 'too much' demand than the supply, then consumers have to find other choices. They could move towards a substitute product or to your competitor's product. Before even realizing the fault your market share might have gone to other companies. Another possible consequence is, due to the shortage in supply for a long time, consumers could have lost faith in it and might not reconsider that product ever again.

So it is very important to maintain a proper equilibrium in demand and supply. Manufacturers always consider this before implementing their pricing strategy for a new product.