Analyzing Strategies for Balancing Supply and Demand in Commerce

This report provides a comprehensive analysis of strategies for balancing supply and demand, a critical challenge for businesses of all sizes. It begins by highlighting the importance of aligning supply with demand, and the consequences of imbalance, including lost sales and increased costs. The report then delves into several key strategies, including Sales and Operations Planning (S&OP), emphasizing its rigorous process involving cross-functional teams to align production with market demand. It also explores the importance of understanding consumer demand through market research and historical data analysis. Further strategies discussed include investing in supply/demand planners, integrating Pareto analysis for targeted stock levels, forecasting supply, and optimizing order frequency and replenishment. The report underscores the need for a combination of these strategies to achieve optimal balance, ultimately leading to improved customer satisfaction and efficient, profitable operations.

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Running head: BALANCING THE SUPPLY AND DEMAND
Balancing the supply and demand
Name
Institution

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Balancing the supply and demand
Introduction
Optimal and consistent balancing of supply demand is a big challenge for companies
regardless of their sizes. The art of aligning supply and demand is quite important in commerce
and for many years the process has been labelled with different names such as Sales, Inventory
and Operations Planning (SIOP), Sales and Operations Planning (S&OP) and Integrated
Business Planning (IBP). Alignment of supply and demand is one important business aspect that
has been extensively researched but still many organizations struggle to practically achieve
optimal inventory. The lack of balance has led to loss of sales in one hand and increased cost of
keeping inventory on the other hand. Because of the challenge to obtaining of optimal inventory,
many organizations vie over or understocking as a binary choice that must be made with little
regard that balancing of demand and supply can be a solution to the challenge. The challenge of
aligning demand and supply extends to manufacturers also as it becomes hard to determine how
much to make, what to make and when is it supposed to be made. Failure to meet the
aforementioned challenge, compels companies to suffer numerous consequences. The paper will
discuss some of the strategies used for balancing demand and supply including sales and
Operations Planning, understanding of demand by consumers, Investing in supply/demand
planners, integration of Pareto analysis in stock targeting, forecasting supply, order optimization
and replenishment among others.
From a manufacturing perspective, the entire production process is affected when the
demand and supply is not effectively balanced. The company may not have the right raw
materials that are necessary for meeting production needs. The cost of production may increase

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anytime the company undertakes an unscheduled changeovers so as to meet unplanned increase
in demand due to effective promotional activities (Moon, 2018). On the other hand the company
may be forced to have excessive inventory for slow moving goods which is costly. Moreover,
promotional programs may be inhibited by shortage of promoted and new products which affects
the sales. Additionally, a company may experience stockouts due to failure of having the right
product demanded in the market at the right place within the specified time (Moon, 2018).
Frequent stockouts for the company are not good for business because they lead to customer loss
or costs that result from expedited orders.
Sales and operations planning (S&OP)
S&OP is a business process used by companies to align supply with demand. The process
is usually used by manufacturing companies where they set their output level at an optimum
point so as to meet the current and planned level of sales in the market (Supply Chain market,
2020). While applying S&OP, the company must ensure that it meets the set objectives of
productivity, profitability, optimal inventory levels, competitive customer lead times among
others. Organizations can manage their businesses proactively through S&OP to achieve optimal
production, inventory and customer service.
S&OP process
The process is usually rigorous and involves numerous activities and stages all aimed at
ensuring optimal operations. The company needs to assemble representatives from key
functional areas that encompasses top management, finance, manufacturing, sales and marketing
and engineering and design (Supply Chain market, 2020). The group’s goal is to come up with
an agreement on what the current status of the product is and future plans of how demand will be

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met. The process involves numerous stages. The first stage is meeting preparation where
representative members from each of the sections are identified, informed and tasked with
gathering data and estimating performance measures. They forecast on different products and
their performance in the market. Detailed reports are prepared by the members and shared
amongst themselves for perusal before the official meeting begins.
The second stage is holding of monthly and quarterly meeting by the representatives. In
this particular meeting, the team discuss the operations and sales results as gathered by
individual members. The sales results help in understanding the customer service and forecasting
aspects, such as the reason why demand exceeded forecasted sales or vice versa and whether the
objectives set for customer service have been met on time (Supply Chain market, 2020). They
also examine whether the actual output matched planned output and whether the inventory
forecasts were accurate. The supply issues are also reviewed during this stage so as to determine
whether the company holds the right inventory and if not, then what can be done to ensure it is
achieved (Supply Chain market, 2020). The last thing to do during the meeting is to determine
what next course of action the company should take to make sure that they achieve the set targets
and objectives.
The third stage is modification and communication of the agreement on demand and
supply plans drafted during the meeting. Once representatives from different departments agree
on different operational and sales plans to be pursued to suit supply and demand, they make
some necessary changes to suit the plans (Supply Chain market, 2020). The sales and marketing
forecasts are revised accordingly to suit the agreed decisions in the meeting.

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The main benefit of undertaking an S&OP process is to ensure optimal performance
where the right product is at the right place within the stipulated time. The managers of a
company can control business in a better way with good insights into the future while leveraging
on intelligence and forecasts to make decisions (Supply Chain market, 2020). More efficient
production is attained reducing inventories and improving customer service in the long run.
Teamwork is also enhanced within the company where middle-management and top-
management work in harmony with clear communication and vision.
Understanding of consumer demand
For a business to balance supply and demand, it is important to understand demand that is
what the consumers want and where they want the products or services. In order to understand
demand, businesses should study the purchasing power of consumers, tastes and preferences and
the cultural and environmental factors that determine consumer behavior (Moon, 2018). For
instance if majority of the consumers demand cheaply packaged products, there is no need of
stocking premium high-end products. In order to find out about what consumers demand the
most and at what time, businesses need to look at historical data for seasonality, trends and
validity of the products in the market. From historical data, companies can utilize statistical
modelling for the sales and extrapolate to predict future demand (Moon, 2018). The approach of
forecasting demand through extrapolation can be done by any business including suppliers and
manufacturers as they can obtain historical data from each store and retailer. Generally, such
forecasting enable management of companies to get a clear picture of what consumers and
retailers want. Once a business has a clear information about the actual and forecasted demand
for a product in the market, they can maintain a steady supply.

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Forecasting the supply and developing a plan to feed it
The goal of every business to make sales and generate maximum revenue. However, as
much as a business sets sales targets, there is need to focus on profitability in the long run after
the targets have been achieved. The ultimate goal of every business should not only be to close
the sales targets but rather to create an accurate forecast that represents true demand of a product.
The forecast should not only be left to sales people because most of the time they are usually
overambitious and optimistic when making projections (Eksoz, 2020). It is therefore prudent that
sales targets and forecasts should be data driven with planners involved in making them. Supply
chain experts play a very important in ensuring that optimal inventory is maintained by ensuring
that products are available at the right time and quantity for consumers. A good example is how
Tesco manages their inventory through an efficient supply chain management team that reduces
inventory costs but ensures demanded products are available on the shelves (Eksoz, 2020). Tesco
is able to efficiently manage shelf space, new launched items and promotions because their
supply chain management team works collaboratively with category management team to come
up with data-driven forecasts.
Investment in supply/demand planners
This is a strategy for balancing demand and supply that goes beyond historical data.
Businesses need to have supply/demand planners that have vast knowledge in product categories
and groups, demand management, forecasting and factors that affect consumption of a product
(Eksoz, 2020). Historical data alone is not enough for forecasting demand and setting targets.
There is need to analyze shopping habits and how culture impacts them, effect of in-store
promotion by competitors, purchasing power of people and the background of majority of the

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consumers in the region. These planners are responsible for demand management and they use
various techniques, methodologies and tools that require specific training and skills. The
supply/demand planners need to understand which tools and techniques are suitable for a
particular data set and which factors affect demand and forecast (Hugos, 2018). The planners
should also have knowledge and expertise about different product categories and markets. This
knowledge is invaluable because it helps the planners to assess the impact of competitor
activities and promotion campaigns on the demand of consumers. Understanding of product
categories also facilitates better communication between the planners and sales team thus
resulting to better forecasting (Hugos, 2018). Therefore, businesses need to invest in
supply/demand planners and equip them with necessary training and tools for better forecasting
which is necessary for balancing demand and supply.
Integration of Pareto analysis in targeted stock level
Pareto analysis is a statistical technique that is also called 80/20 rule for decision making
that identifies which 20% efficient inputs can yield 80% desired output in the market. To balance
demand/supply, planning should aim at looking for 20% of the products that can lead to 80% of
profitability (Eksoz, 2020). Inventory management team should apply this principle where they
identify the most efficient products in terms of sales that can maximize profitability and reduce
costs. Most businesses experience stock fluctuations due to some items running out of stock and
also holding obsolete stock and excess inventory (Hugos, 2018). Using Pareto analysis
technique, businesses can categorize SKUs of every brand according to their performance from
best to worst (Hugos, 2018). For instance, those SKUs that give higher sales should be stocked
more than those with lower sales and profitability. The most important stocks are kept whereas

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those with the lowest sales are reduced significantly. Therefore, the Pareto analysis technique
helps in balancing of demand and supply that results to better customer service.
Optimization of the frequency or order and replenishment
Businesses need to understand their data better and get the right replenishment frequency.
When companies understand their stock replenishment frequency, they can lower their inventory
which helps in cost reduction and better balancing of demand and supply. Moon (2018) notes
that to attain the right frequency, businesses need to check and ensure that they have accurate
lead times by tracking the timely deliveries of every purchase from suppliers. Once the company
establishes a reliable and accurate lead time, the next strategy is to ensure an accurate forecast
for different SKUs (Moon, 2018). The supply chain team plays a central role in ensuring the
company gets the right replenishment frequency thus achieving supply and demand balance.
In conclusion, businesses struggle to attain balance between demand and supply.
Regardless of the size of business, most of them have not attained balance between demand and
supply which is necessary for efficient profitable operations and customer satisfaction.
Businesses need to adopt strategies such as sales and Operations Planning, understanding of
demand by consumers, investing in supply/demand planners, integration of Pareto analysis in
stock targeting, forecasting supply, and optimization of order and replenishment frequency.
Therefore, in order to balance demand and supply, businesses need a combination of various
strategies because no single strategy fits the bill.

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References
Eksoz, C. (2020). Guide To Balancing Supply & Demand | Demand-Planning.com. Demand
Planning. Retrieved 29 April 2020, from
https://demand-planning.com/2020/03/03/balancing-supply-demand-the-5-core-steps/.
Hugos, M. H. (2018). Essentials of supply chain management. John Wiley & Sons.
Moon, M. A. (2018). Demand and supply integration: The key to world-class demand
forecasting. Walter de Gruyter GmbH & Co KG.
Supply Chain market, S. (2020). Balancing Demand and Supply with Effective Sales and
Operations Planning. Supplychainmarket.com. Retrieved 29 April 2020, from
https://www.supplychainmarket.com/doc/balancing-demand-and-supply-with-effective-
sa-0001.