How Can You Protect Your Organization from Demand Constraints? 

Don’t constrain yourself! Real-time insight and the right digital platform means more accurate forecasts.

Key Takeaways: 

Supply chain volatility is expected to continue and plague some sectors until 2024 

• Demand constraints create financial risks as well as environmental problems 

• 25% of inventory surpluses are caused by a lack of transparency and visibility into the supply chain 

• Effective, strategic demand planning is essential, and that requires implementation of the right supply chain platform with real-time data, reporting, and event automation. 

Supply and demand. It’s a simple equation – until it’s not. The COVID-19 pandemic and geopolitical events have created demand variability. This causes volatility, uncertainty, complexity, and ambiguity across the supply chain. The resulting fluctuation in demand is amplified for vendors upstream in the supply chain in a phenomenon called the bullwhip effect. 

The bullwhip effect creates a demand-constrained supply chain marked by excess inventory, production planning problems, and even adversely affects customer service. So how do you manage a supply chain with demand constraints? It is, after all, a complicated balancing act with several competing priorities such as on-time and fully filled orders, achieving financial goals, and keeping things running at optimum levels. 

Supply chain stability is elusive these days, and recovery is likely to be painful – especially for companies that are unprepared to navigate current problems and lack the resilience to cope with whatever comes next. It’s time to up your supply chain planning game with software that lets you manage the supply chain instead of it managing you. 

Demand Constraints and the Problems They Cause for Businesses 

A demand-constrained supply chain is characterized by low demand and high supply. Because supply exceeds demand, all demand can be fulfilled, but there is underutilized production capacity. This is a common phenomenon in capitalism; demands are met with a bountiful supply for pretty much anything, which creates constant underutilization, even when demand is high. 

Then, there’s the issue of surplus inventory. Current volatility takes its toll, creating excess inventory, which creates a financial risk, leading to waste in many industries, particularly food and beverage, and fashion and apparel. 

Excess inventory can be created in several ways, and consumer and market trends are just part of the story.  Retail and home goods industries are especially vulnerable to these trends because of seasonality, but: 

• 60% of excess inventory can be attributed to shipping delays 

• 25% of surpluses are caused by a lack of transparency and visibility into the supply chain 

• Another 15% is caused by other issues such as quality problems and returns.  

Excess inventory has a profound impact on a company’s financial health as well as the environment, but managed effectively, it can be converted into a valuable business asset. 

How to Manage a Demand-Constrained Supply Chain 

Demand variability has always confounded inventory planning. Conventional statistical forecasting models are no longer accurate. A modern supply chain requires a responsive and agile platform that informs range forecasting, flexible contracting, and strategic multi-sourcing with solutions that give visibility into both supplier capacity and proactively manage risk.  

Lack of a proper understanding of demand means organizations can fail to meet orders and maintain a steady workflow. To be strategically effective, demand planners must leverage historical sales data and real-time supply chain visibility. 

Plan 

Your goal, of course, is to achieve that elusive balance. That takes demand planning, which means predicting the demand for your products so you can ensure you can deliver and satisfy customers without creating a surplus.  

Some best practices include: 

Implement the right digital supply chain platform; one that has forecasting tools that can detect nuances, has robust analysis and reporting capabilities and provides transparency and visibility across the entire supply chain. This visibility will allow you to produce a more reliable forecast.  

Collect and prepare your data with real-time visibility; pair inventory movement with reports that give you a clear picture, as well as mine and aggregate data to show areas for improvement and trigger reactions that create a more agile process. 

It’s about efficiency – with visibility into customer demands, product and material requirements, as well as what actions all stakeholders need to perform, you’ll be well equipped to meet market demand without creating surplus inventory. 

Reap the benefits of a well-managed supply chain 

Avoiding demand constraints is just one benefit of a properly managed supply chain. With the proper software, you can develop a cost-effective strategy that minimizes costs while creating happy customers, increasing profits, and boosting productivity. Supply-and-demand balance issues can be promptly addressed. In addition, your organization will realize: 

• Better collaboration with suppliers, distributors, and all supply chain stakeholders 

• Improve efficiency with exception alerts for service level exceptions 

• Automate your planning strategy 

And the big one: optimize your inventory levels so they lead to accelerated turns and reduce the amount of obsolete stock. You can automatically make sure inventory placement takes into consideration shelf-life and substitutions. Fast, sporadic, and slow-moving inventory can be managed by leveraging different safety stock methods and order policies.  

To avoid demand constraints, effective supply chain management requires the right solutions. Today’s supply chain chaos isn’t going anywhere fast, and just as no one saw a pandemic and invasion of a sovereign country in their crystal ball, who knows what will happen next? Best be prepared. 

Logility: Supply Chain Planning With No Constraints 

Don’t be left in the dark, wondering what will come next and with a bunch of excess inventory on your hands. Logility’s digital supply chain platform accelerates the sustainable digital supply chain by leveraging advanced analytics and AI to empower your business with the visibility you need to manage your entire supply chain in good times and bad. Reap the benefits of more accurate inventory planning, accelerated cycle times, improved precision, and increased operating performance.   

We help organizations sense and respond to changing market dynamics, more profitably manage their global businesses, and become resilient, sustainable enterprises. It’s time for a digital, sustainable supply chain. Reach out to our specialists today to discuss our supply chain solutions

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