Apart from industry conditions, the internal state of an organisation affects demand forecasting, which will be affected by factors such as plant capacity, product quality, product price, advertising and distribution policies, and organisational financial policies. The organisation's internal environmental factors will affect the demand for an organisation’s products and services. Such factors are:
- Supply and pricing of the organisation's products and services can affect demand. The organisation has the ability, through its pricing of the products and services that it offers, to maximise turnover during periods of low demand by reducing prices to maintain sufficient profitability to meet its overheads. Conversely, pricing can be increased during periods of high demand to maximise profitability. A typical example is when prices for public transport are at their highest during peak hours of travel during the morning and afternoon rush hours but will fall as the transport operators offer off-peak travel concessions.
- Manufacturing demand and capacity are other ways an organisation can manage the demand for its products and services, where manufacturing can be increased and decreased at a reasonable cost. Manufacturing capacity can be altered through such policies as manufacture-to-order (MTO). This works particularly well where the prices of holding excess inventory are high.
- Suppose manufacturing cannot be altered due to expensive plant and equipment. However, the cost of holding inventory could be higher. In that case, excess manufacturing capacity can be utilised to build a list ahead of high-demand periods. This works exceptionally well in FMCG industries in the build-up to Christmas, where production is used to stock build during the rest of the year and hence keep overhead cost recovery methods within target as the plant and equipment capacity is maximised.
- Product characteristics, where the product features affect the demand for the products and services, must be managed to maximise production capacity whilst decreasing the amount of inventory held. Typical ways of handling this are to tailor the final product when the demand for the characteristics of the products is confirmed with the receipt of the purchase order, typical examples of which are the insertion of electrical plugs to meet the relevant specifications required by different countries.
- The competitive environment is considered when new products and services are launched. With the speed of technological advances shortening product and / or service lifecycles, organisations alter the pricing of the products and services as they transgress through the lifecycle to maximise the profits of new products and services when they are introduced to the market and then lower the pricing as the latest products and services become mature and are replaced by more unique marketable products and services.
- Demand for shorter lifecycle products and services must be managed closely as the demand for different products and services will differ according to where they are within the lifecycle. People will want and pay for the advantages of new products and services through higher pricing. However, some will be willing to pay the reduced prices of older but still functional products and services. Demand patterns for old and new products and services react according to organisations' pricing structures, which is a significant input into manufacturing demand management.
External
environmental market demand patterns can influence the demand for an
organisation’s products and services. Organisations need to scan the
environment for these opportunities and threats, examples of which could be:
- Competitors' products and services may be priced to increase market share or offer characteristics that increase market demand or the competitors' products and services rather than those of the organisations' products and services. Service differentiation is another example of how the need for competitors' products and services can influence demand, which places more commercial risk within the marketplace if action isn’t taken to counteract such competitive advantages.
- The macro-financial environment will influence demand where demand is high during periods of boom and low during periods of recession. Organisations will need to consider this in their pricing of products and services by pricing high during boom periods and down during periods of economic downturn.
- Excess manufacturing capacity within an industrial sector will affect pricing as organisations act to maximise their market share by increasing the demand for their products and services by pricing to cover overheads. Organisations can only affect demand over the long term by shutting down capacity, especially when the cost of plant and equipment is high. Returns on investment take longer for organisations to recoup their financial outlay from the investments made in the productive capacity.
- Technological and environmental advances can influence how sectors make their products and services available to customers. Traditional market sales channels can change overnight, as seen with the advent of the internet, where organisations have more direct contact with the end user.
- Some companies have thrived, whilst others have nationwide store chains, which are becoming a financial burden as their costs are increasing through the overhead costs being split across fewer sales as purchases are increasingly made via an organisation's sales portal increase.
Organisations
need to constantly scan their horizons to remain aware of changes that could
cause a positive or negative impact on an organisation’s ability to remain
financially viable and / or increase business. Some of the issues discovered
will be beyond the immediate control of the organisation where the changes or problems
occur in the organisation's market environment. However, organisations still
need to be prepared for them, nonetheless.
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