Most organizations have a certain level of resilience in their capacity planning models. Supply chain departments usual plan for slight demand variation, buffering spikes by using tools like safety stock etc.
However, how do companies cope when they see a sudden spike in demand (or suffer a disaster in terms of supply?).
For example – I used to work at a company that made major automotive assemblies in a niche market. They bumbled along at manufacturing 50 units a month (it was always 50). However in one particularly hectic period, their customer had an extraordinary year and demand surged, without warning. The company was unable to cope and ended up in turmoil for a number of months as it attempted to plan for meeting this extra demand – it hadn’t expected it and didn’t‘ have a plan.
Its suppliers were stretched, it needed to extend its supply chain to cope but didn’t’ have anything lined up so was very slow to react and failed to hit requirements.
The other side of the coin is where an issue strikes the supply chain and supply is hampered.
These unplanned for demand surges, that can have significant business impact, while rare do happen and Supply Chain planning teams need to consider their strategy and approach.
One of the key challenges in surge planning is that demand spikes and are often complicated to understand and by their nature unpredictable.
However, the organization can plan for events to occur and put strategies in place in order to cope with these issues when they do occur.
The key thing is that organizations are not powerless in terms of planning surges in demand, Risk reviews and modeling can go someway to help companies prepare for demand fluctuation.
There are various variables to consider when modeling surge, for example, you might consider the size of the surge (i.e. 100 units to 1000 Units), How long does the demand surge last (1 week? 6 months?), is the surge volatile (i.e. peaks / troughs or stable?)
Using these variables organizations can look to design its supply chain to cater for demand fluctuation.
How does a company cope with demand surge?
So how does a company cope with surges in demand? Traditionally there are a number of tools at the companies disposal
* Capacity – what additional capacity can be used to meet demand?
* Safety stock (either in finished product or piece parts) – having appropriate safety stock can help radically reduce reaction time.
* Location of safety stock – can help mitigate supply chain issues (i.e. natural disasters) or demand spikes in particular geographical regions.
Using these variables (and others) can help determine the optimal strategy for dealing with demand surge.
Companies can make predictions on each and then look to model the outcome based on various levels of demand surge. This can then provide the input into supply chain planning (i.e what final safety stock to go with).
While many firms plan against direct demand and planning for random events may seem a little alien – these things do happen and when they do
they can have far reaching impact, demand fluctuation in many cases is unavoidable and having a plan on how the business will react is vital.
Have some thoughts on Demand planning? We’d love to hear your feedback below.