Question

Be able to discuss the two broad approaches to responding to predicable variability in a supply chain, and what methods are used in each approach.

Answer 1

Predictable variability is the change in demand that can be predicted using forecasting..

There are mainly 2 techniques to manage change in variability. These are :

1. Manage supply using capacity, inbentory, subxontracting, and backlogs.

2. Manage demand using short-term price discounts and trade promotions

1. Managing Supply: A firm can vary its supply products by controlling these 2 factors:

a) Production capacity: To manage the capacity to respond to predictabel variability, firms use the following approabhes in combination: Time flexibility from workforce, use of seasonal workforce, use of subcontracting, use of dual facilities (dedicated and flexible) or designing product flexibility into production processes.

b) Inventory: Inventory can be effectively managed using the following approached in combination: using common components across multiple products, and building inventory of high demand or predictable demand products.

2. Managing Demand: The demand of a product can be varied or influenced by using the following approaches:

a) Promotion: Promotion can be used to attract customers and increase the product's demand

b) Pricing: By varying Prices of the product we can also change the demand of the product.

c) Marketing and sales often make the promotion and pricing decisions with the objective to maximize the profits