1. How can firms cope with huge variability in customer demand?
Firms may formulate and implement strategies that enhance better demand variability management. Reduction of lead times will facilitate faster reaction for fluctuating demand. Longer lead times result in uncontrollable demand at distribution and supplier level (Arikan, Fichtinger & Ries, 2014). Firms could also consider the implementation of the supply chain that is demand driven whereby consumer demand controls the supply chain which will improve demand variability management. Regular reviews and adjustments on time, stock and capacity enhance better customer demand variability. Visibility on both demand and supply will facilitate an ease in supply chain thus better management of demand variability.
2. What is the relationship between service and inventory levels?
Inventory levels gauge supplies amount that a business has in hand to sell to its customers whereas service levels gauge the size of personnel a business has to engage with customers and sell the products to (Arikan et al., 2014). Both service and inventory levels get determined by customer demand which constantly fluctuates depending on customer’s buying choices and preferences. If the economy declines, customer demand reduces as a result, service and inventory levels go down. If a business introduces a new, unique product in the market, customer demand shoots up which ultimately raises the service and inventory levels.
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3. What is the impact of lead time, and lead time variability, on inventory levels?
Lead time and its variability can impact inventory levels differently. At times, inventory would be held in by suppliers in case of future customer demands which may result in low supplies in the market (Arikan et al., 2014). However, increased lead time may result in the business having undesired product in comparison to customer’s demand. Therefore, firms need to be strategic in managing its lead time and regularly review the supply chain.
References
Arıkan, E., Fichtinger, J., & Ries, J. M. (2014). Impact of transportation lead-time variability on the economic and environmental performance of inventory systems. International Journal of Production Economics, 157, 279-288.
