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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.
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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:
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The
distribution capacities are underutilized at
the beginning of the month, while they are
overutilized at the end of the month.
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The
Warehouse capacities are overutilized at the
mid of the month, before the sell out start to
show.
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The
company needs to rent extra distribution and
warehouse capacities, due to uneven weekly
volume leveling.
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A
turbulent workload fluctuation is causing
stressful working environment and possibility
for errors.
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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.
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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. 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:
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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
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
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