Addressing Demand Volatility in Today's Business Environment

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The seventh in our SupplyChainBrain video interview series features Kevin O'Marah, senior research fellow at the Stanford Global Supply Chain Management Forum. These videos are full of great insights, so be sure to check them out. (Free registration is required to view them, but it’s well worth it!)

Without a doubt, demand volatility is the number one challenge for companies today, whether they are in the CPG, electronics or industrial products verticals, according to O'Marah. “There's quite bit of uncertainty about whether demand is going to smooth out once the economy improves or whether it will continue to be volatile,” says O'Marah. “I think this cuts across consumer goods, industrial products, electronics – even the upstream raw materials industries are feeling the same kind of demand volatility.” That uncertainty has spread internally as well as companies need to know if they have the right “talent” in their ranks. “How do I make sure I have the right skill sets inside my organization to deal with some of these new volatile demand challenges?” Successfully managing the supply chain – and dealing with volatility – entails knowing just what's coming from the marketplace and building a response mechanism into your supply chain and sourcing organizations. “You even have to have it in your manufacturing plants so you can surge when necessary or pull back and not leave inventory around or leave business on the table. “Supply chain management is all about dealing with volatility and minimizing the cost of those disruptions.” There are a number of approaches to dealing with uncertainty, including either manufacturing in house or working with contract manufacturers, sourcing from multiple locations, or delivering through several channels. The decision making process is critical, says O'Marah. “It's all about trade-offs and how well you can handle the near-term opportunity and the long-term implications of affecting the customer base or the supplier. “Those are really big business judgments,” he says. “Trying to make sensible decisions is a matter of understanding how the demand is going to be responded to but realizing what types of impacts you might have in your own internal operations and upstream in your supply chain.” Through most of the 20h Century manufacturers were concerned with trying to remove variability so they could have steadily flowing product on the assembly line. Today's volatile situation makes that impossible. If anything manufacturers now have to have what-if scenario analysis capability. “How do you best make the call when something goes wrong or the opposite, when an opportunity comes along and you'd like to be able to seize it,” says O'Marah. “That's really critical to making the supply chain a competitive capability in your arsenal.” But how quickly must one be able to respond either to problems or to opportunity knocking at the door? “Time is everything in this game,” O'Marah says. “If it's all about balancing supply and demand, all about dealing with those trade-offs, then the last thing you want is to have the option taken away by somebody acting more quickly.” To view video in its entirety, click here.

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