Managing Supply Chain Uncertainty: A Study On Demand And Supply Fluctuation

Demand Uncertainty

Supply chain is a network resembled with the understanding related to the connection among individuals, organizations, resources and technology. According to (Tukamuhabwa , et al., 2015) it includes the mutual process between the creation of a product to delivery of the source materials and from there supply to the manufacturer. In this context, uncertainty has become the order of the present day, given the dynamic environments faced by the markets and the various scenarios and trends leading the businesses and their offerings. Though uncertainty and the associated risks breed confusion and insecurities, it is this ambiguity that also has the potential to result in profitability. The various responses to uncertainty include rationalizing it, responding in a hasty manner, taking time to think and then whether to respond or hold it for some time. Thus, while uncertainty could be considered as a reason to stress out, it can also be viewed as an opportunity by the business entities (Kastelle, 2012). However, the business processes, especially the supply chain needs to be adjusted to this paradox of inevitability and contingency relevant to uncertainty, in order to manage the financial and product related expenditure and returns.

Uncertainties in demand arise due to the inability to exactly forecast the demand for the products among the customers. These unpredictable fluctuations in demand arise due to the nature of the industry or the preferences of the consumers or other uncontrollable macro-environmental causes. Seasonality might also result in the ambiguity, though it can be countered with the knowledge of the past. Such an uncertainty can also arise when the products are being newly launched or pioneering merchandise is being introduced to the customers. At the consumer end, the needs and choices may undergo random changes because of the high-tech innovations, availability of substitutes, inflationary changes, catastrophes and emergencies (Snyder & Shen, 2006).

When demand fluctuations take over the markets, the decreased demand generates surplus stocks for the sellers, which need to be handled by creating proper storage or making arrangements for their return or dispose them off in case of perishable products. Each of the method again means relevant expenditure for the business. On the other hand, when demand multiplies randomly, the seller is out of stock and loses customers to the rivals. Further, sudden or unexpected changes in demand also mean incongruous levels of human resources, procurement, infrastructure and the various business resources. Thus, the demand uncertainty impacts the businesses, as it affects the way firms deal with their orders as well as resource usage, which trickles down into problems in the various supply chain processes (Carlton & Dana, 2008).

In this regard, it can be stated that the demand uncertainty is closely related to the demand and opportunities of technological advancement. In order to maximize the selling figure and extracting more profit big organizations are looking for innovative products. However, in many cases it was found that the innovative product was way beyond the demand and preferences of the customers or below the average of the demands (Mylan, et al., 2015). As a result of that a chance of demand opportunities are eroded and it became a problem for the company. According to García-Quevedo, Pellegrino and Savona (2016) it can be stated that the role of the technological innovation is highly related to the customer preferences or demand in the market (García-Quevedo , et al., 2016). It can be stated that there are certain difference of uncertainty between the demand of the normal products and innovative products. In case of the normal products the uncertainty is related to the supply of raw materials because market demand is always there. However, innovative products have limited customers and as a result of that both the supply of the raw materials as well as the market demands or customers’ appreciation are considered to be crucial factors for uncertainty in supply chain.

Dealing with demand fluctuation

Bullwhip effect (Campuzano & Mula, 2011) exactly explains the way the demand uncertainty magnifies losses when observed backwards in the supply chain. The changes in customer interests impact the retailers, who buy the goods from wholesalers, where stock levels are managed as per the demand levels. Further, as it goes back, the manufactures increase or decrease their demand levels from the raw material suppliers, who might have to plan the inventory levels well in advance. Thus, the maximum impact is on the raw material suppliers.In this context, the demand uncertainty for a specific innovative product will leads to a threat for both the manufacturer and the supplier as well. The Bullwhip method rightly pointed out the difference between the irregular orders in the lower part of the supply chain and causing interruption in the entire supply chain management process. According to Aviv, Wei and Zhang (2018) it can be asserted that market demands and the behavior of the customers are very crucial to deal with the continuous process of supply (Aviv, et al., 2018). Moreover, there are other factors as well that are intricately responsible for the bullwhip effect such as disorganization, lack of communication, price variation and the order batching.

As far as the disorganization factor is concerned, it can be stated that the problems between different supply chain link in course of the amount of production is considered to be a great threat that causes volatile environment for the entire supply chain process. Besides this, the lack of communication between each supply chain in terms of the product quality and quantity will lead to discontinuation of the product supply (Zailani, et al., 2015). Moreover, order batching is another influencing factor that creates vulnerability in the continuous process of supply chain in the form of making due the order despite of having more order.

With the growing change in the customer specification it becomes important for the organizations to be more adaptive and resilient with the situation. Both for manufacturing and services industry it is pertinent to put emphasis on the market transformation. For instance,

• Thorough market research is required in order to deal with the process of supply.
• Moreover, better communication between each supply chain is required.
• In addition to this, decentralized supply chain network is important in order to prevent fatal loss due to disruption in a process of supply chain.

The uncertainty at the supply end is relevant to the fluctuations in the supply of materials. It might occur mainly due to various disturbances because of which a node in the supply chain process is impacted. Though these disturbances are not a regular phenomenon and are short-term in nature, the affect they have on the processes is substantial.The supply uncertainty may also result from the differences in the capacity required and that received, which is a common cause but has lesser impact than the disturbances or supply disruptions. This might result from the situations where the supplies are not available or the quantity demanded is not met or the price at which they are to be sold is not acceptable or profitable (Fang & Shou, 2015).

The quality of material supplied might also be a consideration that has resulted in the ambiguity. Supply uncertainty also occurs when the lead time or the time needed for the materials from that it is ordered, is uncertain. Supply uncertainty may also be resulting from seasonal changes in demand, sudden intensification of the demand or the changes in perceptions regarding economies of scale. The size and the type of the supplies are also important causes of uncertainty in food-related industries (Simangunsong, 2013).

Supply Uncertainty

Vorst and Beulens (Beulens, et al., 2010) classify the reasons for supply uncertainties that impact the supply chain processes into inherent, chain related and supplier-related types.

• Inherent features are connected with the quality of the material that is supplied. These include the longevity or the shelf life, seasonality or the variability caused due to environment-related factors, size and the materials that find multiple uses and therefore needs to be supplied to various industries.
• Chain-related features that contribute to the uncertainty are the position and the number of suppliers available; time-related aspects such as that required for data processing and decision making; lead times, transportation choices and procedures. The correctness and aptness of the supply information system also influences the uncertainty. The levels of assurance and association with the suppliers also play a vital role in this regard.
• The supplier-related aspects that impact the uncertainty are the management and procedural limitations on the part of the supplier. These include the limitations they might face in terms of quantity. Their lack of skill or inability to gather the necessary finances, the damages that might occur while the supplies are being transported; are all the factors that add up to the supply uncertainty.

Along with the demand and supply uncertainties, the supply chain processes are also influenced by ambiguity inflicted by the unique features of the supply chain. The number of elements or the nodes within the supply chain of an organization and the nature of the businesses included in the supply chain has the main say on the uncertainty (Prater, 2013). Further, the mutual nature of the exchanges that occur among the components adds to the complexity as well as uncertainty of the supply chain processes. While these interactions within a single chain itself, described as serial interaction is difficult to handle, the situation is further complicated by the exchanges that each node might as well manage with the other passages in the supply chain, which is described as parallel interactions (Dasgupta, et al., 2012).

The most important intervention to deal with uncertainties at both the demand and supply ends is to align the products and supply chain processes along the consumer needs and preferences, in a continuous manner. In this alignment, it is vital to ponder over the leading and trailing factors, the involved dependences between the product and the SCM processes, mainly by mapping the interdependencies. This exercise must be able to embrace all the possible scenarios and probable nodes of weakness, not only during the planning phase but also in the implementation stage. The strategy to handle these uncertainties in an integrated manner should be evolved only after careful consideration of these interdependencies and the detailed typology, in order to reduce the impact (Verdouw, et al., 2010).

Responsive supply chain is one of the newest concepts being followed by the contemporary business organizations to cope up with the rapid change in the taste and preference pattern of the customers. This is being stated by Roh, Hong and Min (2014) that responsive supply chain is more beneficial for the global manufacturing firms due to the reason that they have to cater to the diverse demand to different regions across the world (Roh, et al., 2014). It is also being stated by the authors that responsive supply chain process refers to the enhancement of the connection and networking among the different process in the supply chain. This helps in having the enhanced effectiveness among the different process to cope up with the change in the market scenario and change the existing approach. In this case, the authors have given the example of the utility of the newest technologies in promoting the responsive supply chain. Technologies such as RFID tag and GPS tracking system will further help the business organizations in enhancing the responsiveness of their supply chain process.

On the other hand, it is stated by Angkiriwang and Pujawan (2014) that responsive supply chain process is more effective for the innovative products over the functional products. This is due to the reason that it is easier for the firms to forecast the demand for the functional products as they are stable in nature with constant demand. However, on the other hand, it is difficult for the firms to forecast the demand for the innovative products. This is due to the reason that innovative products can have demand for a certain time period and preferences of the customers may get change. Thus, it can be concluded that responsive supply chain process will be more effective in the case of the innovative products over the functional products.

Types of Supply Chain Processes

Angkiriwang and Pujawan (2014) put forward a theoretical model that depicts the association between uncertainties related to the supply chain (SC), the interventions planned by the businesses to introduce flexibility into their supply chains and the aims of the SC processes. The ambiguity created by the uncertainty requires the SC processes to be strategized in an adaptable and accommodative manner. The model highlights the responsive approaches that are based on the need for maintaining buffers in different aspects; and the elements that make the system preemptive, which would all contribute to the accomplishment of the goals of the SC processes, which are achieving the service targets, maximizing the use of resources and staying reactive to the changes in the macro-environment. The buffers include (Patil, et al., 2012)

• having the backup of a safety stock that would help them wade through the demand and supply disruptions to some extent. The safety stock further enables the businesses to quickly respond to the fluctuations over a short period.
• maintaining flexibility in terms of capacity, that would provide scope for holding more than that required, in order to meet the sudden shortages. This capacity excess must be used to supplement the stock buffers.
• working with more than one supplier would help in ensuring that the materials required are received in a timely and continuous manner. This is however, an expensive proposition.
• adding the supplementary lead time to the actual time, would enable the businesses to tackle with the demand and supply fluctuations. At the same time, this strategy implies excess stocks and expenses but promises a process continuity and flexibility.

The preemptive techniques to reduce the impact of uncertainties on the supply chain processes are

• sharing the component elements with the other products of the company makes the supply chain flexible enough to adjust to the sudden changes in demand and supply. Further, it also improves the productivity of the SC processes.
• Reengineering the SC processes at the various levels, improving the procedures and their management, would make them adaptive to the changes in the demand and supply.
• Holding the inventory at few strategic points would help the businesses supply the required stock levels to the requested sale points, depending on the consumer preferences and demand levels.
• Outsourcing is an efficient tool to handle the irregular demand, while decreasing the problems associated with capacity buffering.
• Discussing the probability of excess or returns with the suppliers, based on the contingencies, prior to the signing of supply contracts would ensure that the peaks and troughs in demand are efficiently tackled by the SC processes.
• Decreasing the lead time would improve the flexibility and give the businesses the confidence to deal with demand and supply uncertainties
• Creating more than one procedures for each of the processes would enable them to switch to the one that best suits the given contingency.

Chaudhuri and Popovska (2014) proposed different courses of action that might be planned to align the SC processes depending on the source of uncertainty of supply. When the inherent features are the cause, the ways of managing the quantity and quality at the supplier end is to be modified and the business has to stay adaptable in terms of creating a product mix that would not only deal with the fluctuations in supply but also make maximum use of the materials supplied. When the uncertainty is due to chain-related aspects, the strategies of backward integration and maintaining several suppliers would work efficiently.Improving the interactions with the suppliers by quoting reasonable prices, making timely payments and training them would help in dealing with the supplier-based uncertainties.

There are majorly four types of supply chain processes being followed in the current business scenario. Each of these types is applicable and effective in different circumstances. One of the major types of supply chain is integrated make to stock mode. This refers to the strategy of sourcing the materials on the basis of real time tracking of the demand in the market. Thus, it involves lower risks of inability of change with the change in the market. In addition,Patil et al. (2012)stated that the risk of surplus inventory is also low due to the reason that stocking will be done based on the customer’s demand. Another process of supply chain is build to order model. This refers to the process of sourcing the different components for the final products on the basis of customer orders. Thus, there is no risk of unsold products as the production will be done only after the customer ordered. Continuous replenishment process is based on only replenishing the stock in accordance to the demand. However, in this case, coordination with the suppliers is important because and demand of the end products will determine the rate of replenishment. The last process is the channel assembly mode, which involves development of the products along with distribution line. Thus, the involvement of stock and inventory is nil and the level of risks for the firms is also low. In this case, agile supply chain strategy can also be considered, which is more sensitive towards market trend. This can also help the businesses in having more flexibility to change according to market requirements. On the other hand, efficient supply chain denotes a different approach, which states that supply chain process should be efficient enough to meet the customer demand. Thus, in this case, the alignment with the market trend is not being considered but the effectiveness of the process in meeting the desired outcome.

Factors Responsible for Uncertainty

Ma and Wang (2006) proposed a simulation model for meeting the uncertainties in assembly-based industries. It requires the SC strategists to study the impact of the uncertainties on the efficiency of the various processes and then, the system as a whole. This data would then be utilized to develop a customized intervention to handle the ambiguity. However, such customizations require the system to be flexible and agile enough to change the process schedules depending on the availability of the materials and marketability of the products.

Lee (2002) put forward the uncertainty framework, that enables the businesses to identify the levels of uncertainty at the demand and supply ends and then, select the strategy that aptly helps them handle the situation. When the levels of both are low, efficient supply chains are to be designed to minimize the costs. In situations where the demand uncertainty is low while that of supply is high, risk-hedging SCs are maintained, which enable in combining first and then apportioning the available materials. Responsive SCs that are adaptable, help in dealing with high demand and low supply uncertainty situations. Finally, when the levels of both are high, agile supply chains that aim at satisfying the customer needs by efficiently allocating the resources, are used.

Conclusion

From the above discussion, it can be asserted that due to high chance of coordinating the supply chain and the process of continuous inflow of products, it is essential for the organizations to set some measures in order to set a better supply chain management. This report rightly identifies the issues regarding product uncertainty and the role of the supply chain in this context. Conclusively, it can be understood that careful analysis of the uncertainties, whether at the supply or the demand end, are the key considerations for evolving better coping strategies.

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