Question

One of the demand theory is profound knowledge is knowledge about variation .discuss the concept and explain how it can be applied to real word business .provide an example to support your argumement

Answer 1

One of the demand theory of the profound knowledge is the knowledge of variation. The knowledge of variation talks about the fact that quality cannot be achieved if one doesn't understand what variation is. Variation refers to the difference. This difference could be in any form of expected costs or expected demand and actual costs or actual demand. Higher the variance level, ineffective and inefficient performance and accuracy of the firm to develop and perform for the quality assurance. Thus, one important goal of the quality is to reduce the variation. Managers or the employees who do not understand the concept of variance would indulge themselves unknowingly and do activities that would increase this variation.

So, it is important to understand the variation and take the accurate action to reduce it any costs and also understand what type of variance is being existing and causing problems with your accuracy or forecasting. The two main types of variance that could use problem are common cause variance which the variation from the internal system and special variance which is the variance from the external system.

One good example of this could be studied in the production sector. If the production sector estimated that for the next month the demand for the particular good would be 100 units but the actual demand came out to be 110 units in the month, this means that the production was understock and the variance of 10 shows that company performed negative to estimate and cover the same demand. If the same variance is not worked upon effectively, this could even increase to 50 or 100 and can cause the quality and sustainability of the company.