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. Manufacturing can be increased or decreased at a reasonable cost,
and manufacturing capacity can be altered through policies like
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. They then lower the
pricing as the latest products and services 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, rather than those of the organisation's 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, which 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, pricing high during boom periods and low
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.
Organisations need to
constantly scan their horizons to remain aware of changes that could have a
positive or negative impact on their 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.
Additional articles can be
found at Supply Chain Management Made Easy. This site looks at supply
chain management issues to assist organisations and people in increasing the
quality, efficiency, and effectiveness of their product and service supply to
the customers' delight. ©️ Supply Chain Management Made Easy. All rights
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