Question

5) Discuss the impact of promotion on demand within a supply chain. In 500 words

if it is less than 500 your mark is ZERO

Answer 1

In commerce, supply chain management, the management of the supply of goods and services, implys the movement and conservation of raw materials, of work-in-process inventory, and of finished goods as well as end to end order achievement from point of origin to point of consumption.

It can be quite useful if price stimulus are significant. The best mention for this is a paper called The Bullwhip Effect ,as the paper points out, this is not good for the supply chain.

However, companies can also practice it to sell what they have vs. what a customer might have actually needed. A customer might have needed a 1 gig hard drive but the company may not have those. Alternatively, they have surplus of .75 gig hard drives and they decrease the unit price to be more attractive to sell those off.

We just need to be smart about our market and the long term imapcts

of promotions on the chain.

Sales promotions surely affect the customer’s shopping nature, but the way they do that can differ. Companies normally expect a promotion benefits, thus an enhance in volume, of the promoted product, but generally there are some bad-effects too that can greatly impact the supply chain planning:

1. Capitalization: If two products in the organization’s product characteristics are almost perfect substitutes for each other, than there’s a good opportunity that the developed good will finish up in the customer’s shopping basket instead of the other, quite similar product. Sales of the discounted product grow, but at the expense of another product in the range. .

2. Radiance effect: This is just the opposite of capitalization, whereby there’s a preference shown by customers towards certain other products made by the same manufacturer.

3. Stealing effect: Before and after the promotion there may be a sales immersion for the promoted item, the so-called pre-promotional and post-promotional dips. Customers anticipate the sales promotion before buying and once they have bought the discounted product, they won’t require to purchase it anymore in the period just after the promotion.

The effects explained above, show that organizations have to take into account different types of volume impacts, but that a sales promotion can also have a financial reaction.

For getting sales promotions, it’s important to deliberately determine which promotion will profit the most value – in volume and budget – thereby taking into account the negative-effects. Organizations that have a decent planning tool, to check the impact of promotional campaigns with different conditions on the same product. With an mixed promotion and demand planning, it’s also possible to reckon with the type of customer agreements. . And, for regular promotions too, there are several data which can be not supported in the schemeing of promotions to improve the promotion prediction, such as the discount mechanism (e.g. bill back), the geographical limitation and the overhead costs linked to that promotion (e.g. displays).To make the connection in the promotion planning between volume and value, increasing use is made nowadays of price elasticity mechanisms. Instead of asking Sales how much extra volume they expect to sell, the desired extra revenue is estimated.