Discuss key issues when managing predictable variability of demand within a supply chain

Question

What will be an ideal response?

Answer 1

Answer:
1. Coordinate planning across enterprises in the supply chain. For a supply chain to successfully manage predictable variability, the entire chain must work toward the one goal of maximizing profitability. Everyone in a supply chain may agree with this in principle, but in reality, it is very difficult to get an entire supply chain to agree on how to maximize profitability. Within a company, marketing often has incentives based on revenue, whereas operations has incentives based on cost. Within the supply chain, different enterprises are judged by their own profitability, not necessarily by the overall supply chain's profitability. It is clear that without working to get companies to work together, the supply chain will return suboptimal profits. Therefore, firms in the supply chain need to collaborate through the formation of joint teams. Incentives of the members of the supply chain must be aligned. High-level support within the organization, including support from the chief executive officer, will also be needed because this coordination often requires groups to act counter to their traditional operating procedures. Although this collaboration is difficult, the payoffs are significant.
2. Take predictable variability into account when making strategic decisions. Predictable variability has a tremendous impact on the operations of a company. A firm must always take this impact into account when making strategic decisions. However, predictable variability is not always taken into account when strategic plans are made, such as what type of products to offer, whether or not to build new facilities, and what sort of pricing structure a company should have. The level of profitability is greatly affected by predictable variability and, therefore, the success or failure of strategic decisions can be determined by it.
3. Preempt, do not just react to, predictable variability. Companies often have a tendency to focus on how they can effectively react to predictable variability. This role often falls on operations, which tries to manage supply to best deal with predictable variability. The management of supply as well as demand provides the best response to predictable variability. Actions like pricing and promotion that manage demand are preemptive and often in the domain of marketing. It is important for marketing and operations to coordinate their efforts and plan for predictable variability together well before the peak demand is observed. This coordination allows a firm to preempt predictable variability and come up with a response that maximizes profits.