Suppy Chain

Demand Volume Leveling (E)

Why is the demand fluctuating during the month? What are the effects of demand level fluctuation to Supply Chain and the company? What are the methods of weekly demand volume leveling?

Posted: Jun 2009

Demand for product and supply of the product are interrelated. The demand is leading to supply. This is natural process and it runs smoothly, until greater deviations in this process occur. Perfect relation between demand and supply is when the demand is flat or change gradually through time. The problems start when demand fluctuates more than 20-30% from one week to another.

Different things can cause these fluctuations. If the customers receive bonus discount from their supplier for the sold volume in a certain period, usually on monthly basis, it is often that the volume ordered tends to be accumulated at the end of the month. This is caused by many factors: lack of planning, other priorities or waiting for the development of sell-out from the outlet. If the sales volume is promising, than the customer is ordering full monthly plan quantity. If there is the problem with the sell-out, than the customer can cancel any further orders, in order to prevent overstocking and cash drain. Also, if the volume targets given are challenging, which means that supply is greater than demand, than it is even more to expect that volume will be concentrated at the end of the month.

The uneven spread of the volume through the weeks is common for fast moving consumer goods businesses that have aggressive targets. This is causing the weekly volume to have ascending trend through the month, from very low to very high. From perspective of supply chain it creates a great problems:

• The distribution capacities are underutilized at the beginning of the month, while they are overutilized at the end of the month.
   

• The Warehouse capacities are overutilized at the mid of the month, before the sell out start to show.
   

• The company needs to rent extra distribution and warehouse capacities, due to uneven weekly volume leveling.
   

• A turbulent workload fluctuation is causing stressful working environment and possibility for errors.
   

• Service level can potentially decrease in case that Supply Chain can not timely to deliver ordered volume. During the month-end peak incorrect loading and invoicing is more possible in peak periods.
   

• There is potential quality risk of damaging products during the intensive product manipulation period, such as the month end is. At same time the safety risk in increased too, since accidents are more likely to happen when there is the rush in the loading area.

These are the main reason why the company should be looking for the solution for this problem. One of them is protection of service level that directly influneces the sustainable competitive advantage of the company. The solution is to conduct activities that will even the weekly volume level. There are several different measures that can bring to solution of the poroblem of weekly volume phasing:

1.) Incentivizing of customers for respecting the weekly volume plan.
 
2.) Incentivizing the sales force to conduct the volume planning according the flat weekly volume phasing.
 
3.) Group customers and sales routes in areas with different sales periods, for example; from week 1 to week 4, from week 2 to week 1, ... This is separating month end rush to several "month ends" within the month, but without large volume pressure.
 
4.) Starting with the promotions at the beginning of the month, instead at the end of the month.
 
5.) Education of sales personnel and customers about importance of even weekly volume phasing.

The customers should be educated and guided to even weekly phasing, not only because of supply chain management simplification, but also because simplification of customer's business too. Even weekly volume of customer will enable him to have flat workload, better capacity utilization and to avoid cash drain and overstocking at the end of the month.

The care about importance of leveling of weekly volume is important from many aspects. Since all business branches are increasing complexity as the time passes, the weekly volume leveling will became even more important.

Recommended reading:
Case Study: Weekly Volume Leveling