Businesses can use strategic planning to forecast current and future production needs using a variety of techniques, but the end goal is always to limit surplus quantity in production so as not to exceed the amount of demanded commodities. Why? Simply because there would be loss on the businesses’ path whereas endless goods would be left fallow due to absence of consumer demands and this is really nothing to write home about.
It is required by a business to meet its business objectives, and a part of these objectives do not include rampant supply of goods that exceed the demand of it. With inaccurate forecasts increasing sometimes due to a faulty and inaccurate human resource team, and along with them the costs of errors racing high up as tall as mountains. Manufacturers and retailers alike are ending up with more unwanted goods that must be marked down—perhaps even sold at a loss—even as they lose potential sales because other articles are no longer in stock. In industries with highly volatile demand, like fashion apparel, the costs of such “stockouts” and markdowns can actually exceed the total cost of manufacturing.
This is why the following measures should be taken when scenarios of this sort are trying to be avoided.
Firstly, new manufacturing resource planning should be created whereas the manufacturer can rapidly change the production schedule that has been originally stored in the system once it is realized that market survey or research taken proves that the products demanded are way lower than the multitude that is supplied. Hence, having repeated market survey taken at short time intervals proves very important in this case as records are evidently very important when its original forecasts are rendered faulty and no longer effective. Even though, creating a new schedule doesn’t help, though, if the supply chain has already been filled based on the old one, it could be very helpful for the next seasonal supplies.
Secondly, taking into consideration missed sales opportunities is a key measure that helps reduce unnecessary supply of goods. The costs per unit of stockouts and markdown must be kept into account and factored into the planning process. Most companies do not even measure how many sales they have lost, let alone consider those costs when they commit to production.
Lastly, expert judgement and historical data are needed for the companies to rethink, research and overhaul not only every important aspect of their supply chains—including the configuration of their supplier networks, schedules for producing and delivering unfinished materials, transportation, and the number and location of warehouses—but also the designs of their products. Armed with the knowledge of which products have predictable demand and which do not, they can then take different approaches to manufacturing each class of product. Those in the relatively predictable category should be made the furthest in advance in order to reserve greater manufacturing capacity for making unpredictable items closer to the selling season. Such a strategy enables companies to make smaller quantities of the unpredictable products in advance, see how well the different goods fare early in the selling period, and then use that information to determine which products to make more of.
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