Lowering the Costs of Seasonal Demand by Planning
Updated: September 14, 2004
Are the seasons getting shorter? Kim Rathsack, lead program manager at the Microsoft Dynamics supply chain center of excellence in Denmark, seemed to think so when he answered a few questions about the pressures seasonal demand puts on companies, and what you can do about it.
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What is it like to handle demand during peak season?
The pressure is enormous. I've felt it myself when I was a purchasing director for a global retailer, and when I was manager for an outsourcing logistics company working in Asia. During the peak period every year, thousands of containers with merchandise would be back-logged in the southeast Asian ports and in China. The suppliers depended on this money to pay for the raw material for next weeks orders. So, there I was in a room big enough for maybe 20 people packed full of a couple hundred suppliers screaming for us to take their orders. It's a nightmare.
Is the pressure of seasonal demand intensifying?
I see a clear development of seasonal products getting more and more seasonal, in other words, the peak period is getting shorter. Big global retailers want to receive items as late as possible. They don't want to sit around holding dead inventory from fall until Christmas. That puts pressure on distributors, which in turn puts pressure on manufacturers, and so on, the pressure moves down the supply chain like a wave.
How does that affect individual companies?
The same thing happens within each company. The wave of pressure is passed from the customer service department to the finance department to production to warehouse to shipping, and so on. Each department gets hit with a wave of demand in their respective peak seasons. This makes it difficult to balance resources because, in each area, you need people with the right skill set. What's more, you have companies sitting with a more or less empty warehouse for the greater part of the year.
So why is the trend toward shorter peak seasons continuing to intensify?
Everybody agrees that if you could spread out production over a longer period of time, and avoid the peak rush, it would save money for the whole supply chain, but nobody wants to sit back and hold the monkey. Everyone is afraid that they will bear the costs. Companies may realize that they are one of many stakeholders in a supply chain, and that they could share the costs in a more efficient way, but it's just not a reality yet. It's true that many supply chain partners are working closer with their tier-1 partners, but when you look at the whole supply chain, from raw materials to consumption, very few companies are that advanced in their collaboration.
What is the alternative?
I think that the trend is approaching the limit of where it can go. Something has to be done to find alternative means of handling activities. Business management software systems, like the ones I'm helping to develop at Microsoft, can help reduce some of the pressure by reducing the amount of information that has to be rekeyed in manually. And new tools like event management, radio frequency identification technology, and more advanced demand planning functionality can help provide greater visibility and more accurate information, which will help fragmented supply chains speak to each other and knock down costs.
