Factors Affecting Global Demand and Supply - Research Paper Example

Factors Affecting Global Demand and Supply Introduction In the current economic arena, supply chain controllers and managers are of very high importance since companies rely on them to deliver satisfactorily to stakeholders. If there is no good management of demand and supply, there is a possibility that the company will overstock or understock. If a company overstocks, the goods may spoil especially if the product life cycle is short (Peter, 2011). On the other hand, understocking means that customers will lack goods; hence, the company becomes inefficient and ineffective to its stakeholders and stands a chance of losing to its competitors. A research conducted by Ronaldo (2010) indicates that a significant loss of shareholder value emerges from gaps in demand and supply management. Mostly, these shortages in supply are caused by monopolized supply, poor forecasting, poor planning, low inventory levels, long delivery processes and poor communications. With a delay in one of the above elements of demand or supply, a big impact is evident in the business operations especially financially. When a company ignores the importance of advanced and innovative technology, it stands a big chance of losing its competitive edge. Demand can be either independent or dependent. A dependent demand is whereby the demand of a certain product depends on the availability of and demand for another product (Aswathappa, 2004). For example, the demand for mobile batteries will depend on the availability of mobile phones. On the other hand, independent demand means that each product demand does not rely on demand or supply of any other product or service. Factors Affecting Demand and Supply Demand for commodities and services are mainly influenced by commodity price change as customers can easily shift to the same product offered by a competitor. If there is a change in customers’ income, the customer can either purchase more or less in respect to the income change. Tastes and preferences constantly change among customers due to change of fashion trend or other influencers such health and change of status. Demand is also affected by change in price of competitive goods; if the prices of such goods increase, the demand for supplementary goods go high and vice versa (Nezih & Lewia, 2011). Government policies may also increase or reduce demand when they pose a control bill and supply restrictions. Further, when certain goods are taxed and levied heavily, producers limit production. Thus, prices are high due to the cost involved in production, hence high price tags per unit product. Natural calamities and seasons play a big role in changing goods and services demand and supply. For instance, during winter, the demand for warm clothing is high, but during summer, the demand is very low. Commercial advertisements, when communicated effectively, increase demand of the particular product or service since a large volume of customers is exposed to the information and is willing to try out the product due to curiosity and as a result, the demanded goods flood the market (Colins, 2012). Demographic factors such as age, the total available population and a change of growth rate have a very big impact on demand and supply. A certain age group will show demand high of a specific commodity than that of another age group. For example, kids will demand more of toys than any other age group and a population with a big number of babies means that the total demand and supply for toys is high. Sociological factors such as level of education, marital status and sex will also influence demand. The quantity of competition in the market affects demand in the sense that if competitors are many, there is a lot of supply. Therefore, the customer has a wide variety to choose from, and this inversely affects demand and price stability. Cost of inputs has a major influence on supply. If labor and capital charges are high, the supply is limited since the producers have a limited production capability. The state of technology affects market production, hence the available supply. Advanced technology enables mass production of goods and services, hence sufficient supply to satisfy market demand (Charles, 2009). Global Alignment of Demand and Supply The concerned managers can prevent shortages of demand and supply. This will be through regular and constant market data review, developing systems that can sense changes and trends in the market. They should be proactive rather than reactive to the market shifts. Stock controllers should incorporate the other resourceful departments of the organization while planning since they possess many important and reliable data. For an organization to make an informed decision on customer necessities, market condition and stability, demand and supply forecasts, global logistics and product introduction to the market require a well formulated system to collect, analyze and disseminate demand and supply information (Hau, 2002). For demand planning, forecasts are made from the analysis of the past and present market trends. This can enable the stock managers to draw a graph on future speculations. Sales representatives who have a direct link with the customers can provide such data as they get a lot of customer feedback in the form of complaints or gratitude. Logistic planners also can advise on the best shortest way to deliver products to customers to minimize chances of stockout, thus stabilizing demand and price (Gregory, 2011). Product developers should also be involved in the market analysis since product quality influences demand. If the quality is poor, customers will purchase from competitors, hence the company loses out. Therefore, when the quality developers understand the customer’s needs and expectations, they are well placed to design a product that satisfies the intended purpose (Richard & Collin, 2002). On the supply side, the company supply manager should be able to forecast the stability of supply as well as their key suppliers. The manager should evaluate the suppliers to ensure they realize expected targets and the stock supply is stable. Well-processed market information on demand and supply enhances the planning of product life phase, which incorporates planning, development and management. When feedback from the sales team is integrated with the production teams’ ideas on market changes especially in new products, chances of market acceptance for the new products are high. Formulation of annual sales and operations schedule can stabilize supply since the manager can identify seasons of high demand and low seasons (Juttner, Godsell, & Christopher, 2005). With such knowledge, the manager knows when to supply more or less and when to look for additional suppliers. For efficiency, the company should formulate a supplier scorecard to measure all potential suppliers against (Ronaldo, 2010). This ensures that the qualified and stable suppliers are enrolled. The technology required for the production is also put in consideration to shorten the process and produce quality goods. The company should set long-term objectives to control supply management. This will put the company management on one direction since there is one mindset amongst them. In order to keep the management focused, regular objective reviews are necessary, as the management identifies deviations from the objectives and correct them. In conclusion, linking of product life cycle, sales and operations and quarterly review into an integrated market analysis strategy will enable the company to fight any demand or supply setback in the market. This is because the company understands its customers well and knows their expectations; the company has information on competitors as well as the frequency of chances in demand and supply. Putting into consideration the factors influencing both demand and supply, it can project the market and prepare the management to handle the demand and supply gaps. The management should be able to satisfy market demand during high demand seasons and maximize profits. High demand can result from a boom in the economy, new fashions and design or seasonal changes while a decrease in such factors leads to low demand (Jeff, 2009). On the other hand, supply increment can result from entry of new suppliers in the market, change of climate and weather to being conducive. For example, supply of sugar and sugar cane can result from increased rainfall. Government policies may affect supply either positively or negatively. Restriction and high taxation on tobacco farmers discourages supply of tobacco leaves to the manufacturers. This is then transferred to the market since there is no enough supply to meet the demand. Involving all functional structures of an organization in decision making on product development will give the company a competitive advantage since they will provide the best product and sustain it in the market by use of predictions. The company will be flexible to customer pattern of demand. References Aswathappa, K. (2004). Human resource and personnel management. New York: Tata Mc Graw-Hill Education. Colins, L. (2012). Demand forecasting and inventory control. London: Routledge. Gregory, M. (2011). Principles of economics. New York: Cengage learning. Hau, L. L. (2002). Aligning supply chain strategies with product uncertainties. California management Review, 44(3). Jeff, M. (2009). International financial management. New York: Cengage Learning. Juttner, U., Godsell, J., & Christopher, M. G. (2005). Demand chain alignment competence-delivering value through product life cycle management. Industrial Marketing management, 35, 989–1001. Nezih, A., & Lewia, A. (2011). Service parts management: Demand forecasting and inventory control. London: Springer. Peter, J. (2011). Macroeconomics in emerging markets. Cambridge: Cambridge University Press. Richard, G, & Collin, H. (2002). First principles of economy. Oxford: Oxford University Press Charles, C. (2009). Demand driven forecasting: A structured approach to forecasting. New York: John Wiley & Sons. Ronaldo, T. (2010). Global agricultural demand and supply: Factors contributing to the recent increase in food commodity. London: DIANE Publishing. Read More