Apart
from industry conditions, the internal state of an organisation affects demand
forecasting, which will be affected by factors such as plant capacity, product
quality, product price, advertising and distribution policies, and
organisational financial policies. The organisation's internal environmental
factors will affect the demand for an organisation’s products and services.
Such factors are:
- Supply
and pricing of the organisation's products and services can affect demand.
The organisation has the ability, through its pricing of the products and
services that it offers, to maximise turnover during periods of low demand
by reducing prices to maintain sufficient profitability to meet its
overheads. Conversely, pricing can be increased during periods of high
demand to maximise profitability. A typical example is when prices for
public transport are at their highest during peak hours of travel during
the morning and afternoon rush hours but will fall as the transport
operators offer off-peak travel concessions.
- Manufacturing
demand and capacity are other ways an organisation can manage the demand
for its products and services. Manufacturing can be increased and
decreased at a reasonable cost, and manufacturing capacity can be altered
through policies like make-to-order (MTO). This works particularly well
where the prices of holding excess inventory are high.
- Suppose
manufacturing cannot be altered due to expensive plant and equipment.
However, the cost of holding inventory could be higher. In that case,
excess manufacturing capacity can be utilised to build a list ahead of
high-demand periods. This works exceptionally well in FMCG industries in
the build-up to Christmas, where production is used to stock build during
the rest of the year and hence keep overhead cost recovery methods within
target as the plant and equipment capacity is maximised.
- Product
characteristics, where the product features affect the demand for the
products and services, must be managed to maximise production capacity
whilst decreasing the amount of inventory held. Typical ways of handling
this are to tailor the final product when the demand for the
characteristics of the products is confirmed with the receipt of the
purchase order, typical examples of which are the insertion of electrical
plugs to meet the relevant specifications required by different countries.
- The
competitive environment is considered when new products and services are
launched. With the speed of technological advances shortening product and/or
service lifecycles, organisations alter the pricing of the products and
services as they progress through the lifecycle to maximise the profits of
new products and services when they are introduced to the market. They
then lower the pricing as the latest products and services mature and are
replaced by more unique marketable products and services.
- Demand
for shorter lifecycle products and services must be managed closely, as
the demand for different products and services will differ according to
where they are within the lifecycle. People will want and pay for the
advantages of new products and services through higher pricing. However,
some will be willing to pay the reduced prices of older but still
functional products and services. Demand patterns for old and new products
and services react according to organisations' pricing structures, which
is a significant input into manufacturing demand management.
External
environmental market demand patterns can influence the demand for an
organisation’s products and services. Organisations need to scan the
environment for these opportunities and threats, examples of which could be:
- Competitors'
products and services may be priced to increase market share or offer
characteristics that increase market demand, rather than those of the
organisation's products and services. Service differentiation is another
example of how the need for competitors' products and services can
influence demand, which places more commercial risk within the marketplace
if action isn’t taken to counteract such competitive advantages.
- The
macro-financial environment will influence demand, which is high during
periods of boom and low during periods of recession. Organisations will
need to consider this in their pricing of products and services, pricing
high during boom periods and low during periods of economic downturn.
- Excess
manufacturing capacity within an industrial sector will affect pricing as
organisations act to maximise their market share by increasing the demand
for their products and services by pricing to cover overheads.
Organisations can only affect demand over the long term by shutting down
capacity, especially when the cost of plant and equipment is high. Returns
on investment take longer for organisations to recoup their financial
outlay from the investments made in the productive capacity.
- Technological
and environmental advances can influence how sectors make their products
and services available to customers. Traditional market sales channels can
change overnight, as seen with the advent of the internet, where
organisations have more direct contact with the end user.
- Some
companies have thrived, whilst others have nationwide store chains, which
are becoming a financial burden as their costs are increasing through the
overhead costs being split across fewer sales, as purchases are
increasingly made via an organisation's sales portal.
Organisations
need to constantly scan their horizons to remain aware of changes that could have
a positive or negative impact on their ability to remain financially viable
and/or increase business. Some of the issues discovered will be beyond the
immediate control of the organisation, where the changes or problems occur in
the organisation's market environment. However, organisations still need to be
prepared for them.
Additional articles can be found at Materials Management Made Easy. This site looks at the flow of materials to assist organisations and people in increasing the quality, efficiency, and effectiveness of their product and service supply to the customers' delight. ©️ Materials Management Made Easy. All rights reserved.
