Demand and Supply Problems - Essay Example

Demand and Supply problems As the article point out, the Internet commerce helps the companies to increase their sales significantly, however, due to the unpredicted growth of demand, the suppliers often run out of the components quickly and as the result, the customer are not satisfied, the company loses sales and eventually the dissatisfaction leads to the switching to the another brand. It has been noticed that those customers who buy online pay more attention to the overnight delivery and availability of the product rather than the cost of the purchase. The first problem with internet commerce is that it makes the demand harder to predict. The orders are taken in seconds and customers want the overnight fulfilment of the order. The new concept of just-in-time ordering impacts the whole supply chain starting with the end customer through the manufactures and suppliers. Because the number of orders varies every day, there is an opportunity that one supplier might wrongly predict the demand and run out of one of the components. The lack of some part leads to the break down of the whole system. Unfortunately, most of the companies heavily advertise their products and do not realize that the component shortage leads to the loss of existing and potential customers because they are not able to satisfy the demand they had stoked. The shortage issue is especially critical for the popular products. Taking into account the example of PlayStation2 many of the potential customers were willing to buy the product but could not find it. As the result, they have switched to other brands. As the study has proved, one week delay in delivery leads to 5 percent probability of order cancellation. It is especially important for the large companies to retain customers because the struggle for market share is very intense. However, small businesses who use e-commerce as the major selling technique might suffer even more because they have no opportunity to ensure enough supply due to the unpredicted demand shifts. Suppliers have even less information about the demand and are not eligible to solve the above problems. Sometimes companies put great emphasis on the suppliers and try to shift the responsibility for unexpected demand growth to manufactures, however, such practice is counterproductive and leads not only to the loss of customers but to the loss of major suppliers as well. Importance of manufacturer/supplier communication In order to solve the above problems it is vital to get wired tightly with the suppliers, thus the suppliers should at least know what the manufacturer knows. For example, if the demand in the last two days has increased significantly, it is a good idea to contact the supplier and share this information. If such communication and information sharing occurs regularly, the suppliers are able to get ready for unexpected demand growth better. The close communication helps to deal with the demand decreases as well. Sometimes the surplus of product leads to even greater loss of income become these products have to be kept somewhere. Fortunately, most of the products sold through internet do not spoil over time and have extended warehouse holding. For example, if there is the surplus of MP3 players, the warehousing costs will be significantly lower compared to the holding of TV sets. At the moment, the communication between manufactures and suppliers is quite limited and suppliers are not able to handle the huge unpredictable number of orders from manufactures selling via internet. Partially, this shortage of products is the result of the poor communication - the suppliers do not get enough information from manufactures. It is easy to take a lot of orders, however, the manufacturers are slow to deal with the supply. For some reason companies are not willing to adopt new methods of managing supply and continue forecasting based on the historical principles and the judgment of the sales people. Nevertheless, the monthly planning is not useful any more and causes shortages. Weekly planning or even as often as each three days is more appropriate for the modern business environment. The improved communication between manufactures and suppliers helps to overcome problems with demand and supply because when information is shared, there is a higher probability of meeting the increased demand more efficiently and avoid the product shortage. For example, if the demand has been increasing over the last two weeks, it can indicate that the demand will increase further, especially if the product is heavily advertised. Suppliers should be informed about the daily sales in order to be able to plan the inventory level necessary to cover the demand. Extranet solution Moreover, it is not enough to backup suppliers, the whole system of communication process and information sharing should be changed. When the first shortages started to occur, most of the companies attributed the increased demand to the traditional business cycles - when the company is at the point of growth and expansion. However, the e-commerce requires the implementation of the unique fundamentally changed supply and demand system shaped by new business models, customer expectations and internet solutions. Extranet is the best alternative to the traditional techniques. Unfortunately, not a single business unit has figured out how to deal with these changes and how to predict the internet sales accurately. The introduction of the extranet communication system between manufacturers and suppliers can help to overcome problems with demand and shortages. The example of Dell and its manufacturing schedules (provided in the article) is a perfect situation of close cooperation between supplier and the company - suppliers are able to access the real-time information about the orders in order to adjust the supply of the products and avoid the shortage. The same applies to the product changes - before the company decides to introduce the new or improved version of the product, the suppliers should be ask whether they are able to handle the change. Because of the lack of communication, manufacturers often shift the guilt for shortage or decreased sales to suppliers, but the problem is that suppliers were not able to keep up with numerous changes coming in from manufacturers. Extranet solution helps the company to respond to the demand faster and more efficiently. Moreover, the relations with suppliers become more trusting and closer. More and more companies realize that in order to remain competitive on this new market of e-commerce it is necessary to cater to suppliers. In the nearest future, most the manufacturers will benefit from the information exchange about the product parts, assembly and the business process. Several manufacturers (computer producers mostly) are already developing the close communication systems with the suppliers and are able to meet the demand of the customers, no matter how unpredictable it is. Word Count 1112 Read More