We don’t know when it’s going to rain. So, we build dams. Dams are reservoirs, inventories of fresh water. Having a reservoir assures an adequate supply of water to meet the continuous demand of communities.
A large printer company does not how many books its customers will buy tomorrow. Paper prices and supply are also not predictable. The company therefore stocks up on paper and negotiates contracts with potential customers. Company executives have to take care to not have too much paper on storage or not too have too many customer orders coming at one time. It’s a balancing act of supply and demand but that’s just the way it is in the printing business.
Supply chain managers face a myriad of challenges in their operations. But one can categorise some of these challenges when it comes to inbound materials and outbound finished goods. The following are four (4) such categories or scenarios:
- Unsure Supply, Sure Demand
Demand is known but supply is not. As in the example of the dam as water reservoir, demand (i.e. water consumption) is certain but supply (rainfall) is not. Supply chain professionals would put much time and resources in predicting supply or finding alternative means to maximise it (e.g. cloud seeding, drilling wells). They would also be investing in enough capacities for inventories (in this case, the reservoir) to assure demand is always met.
2. Sure Supply, Unsure Demand
Supply is assured but demand is unknown. People who have new products talk about this scenario a lot. But this also applies to products with not-so-long life-cycles such as attire and accessories from the fashion industry. In such cases, supply chain managers tend to stock up on finished products to ensure availability. But because finished products are the most expensive type of inventory, supply chain managers spend a great deal of time and money in policies and systems to make sure they only have enough—not too much and definitely not too few.
3. Sure Supply, Sure Demand
Supply and demand are certain and predictable. This can sound like an enterprise’s idea of a business dream come true but there would still be work to do for the supply chain manager. In such a scenario, the focus would be on reliability, that is, making sure that the enterprise’s processes are operating efficiently and delivering to the satisfaction of customers. This can be easier said than done especially for enterprises that have complicated manufacturing operations (e.g. chemical refineries).
4. Unsure Supply, Unsure Demand
The nightmare opposite of number 3? It’s a reality for many enterprises who market products such as consumer goods, machinery & parts, and household appliances. Enterprise sales managers would constantly be guessing demand (what they would call forecasting), while supply chain executives would be unendingly negotiating long-term contracts with vendors, at the same time managing inventories of materials and merchandise. There would be pressure not only to minimise working capital but also to ensure availability of items to customers. One key take-away strategy for this scenario is collaboration—working with vendors and customers.
These four (4) scenarios may sound over-simplified given the reality of issues that surround supply chains (how expensive materials are, where they originate, the shelf lives of materials and products, number of products the enterprise sells, etc.).
But they provide a starting point for Supply Chain Engineers (SCE’s) to devise systems that synchronise the flow of merchandise through supply chains to generate productivity and competitive advantage.
SCE’s can help managers calculate capacities and set inventory policies for unsure supply and/or unsure demand scenarios. SCE’s can also work out manufacturing reliability improvements, labour work-place settings, and equipment maintenance methodologies that would cover sure-supply / sure-demand scenarios.
As 21st century business becomes more dynamic, SCE’s can help enterprises anticipate changing scenarios. SCE’s, for instance, can study the feasibilities of outsourcing production versus building in-house capacity given any of the different supply and demand scenarios. SCE’s can also plan contingencies for logistics such as determining how many trucks an enterprise should buy for itself versus how many should be outsourced to 3rd party providers. SCE’s can also offer ideas for flexible production systems such as cellular manufacturing and fast-changeover assembly lines.
Enterprises face different scenarios depending on their business environment. Supply and demand of what they buy and sell may be certain or they may not. Whereas enterprise managers resort to inventories and capacities to make up for any uncertainty, supply chain engineers offer help not only in optimising for whatever scenario but also in anticipating to whatever changes that may come.
Supply chains can be complicated; supply chain engineers make it less so.