{"id":7950,"date":"2023-04-14T13:32:29","date_gmt":"2023-04-14T13:32:29","guid":{"rendered":"https:\/\/www.shipbob.com\/uk\/blog\/demand-volatility\/"},"modified":"2024-04-23T16:53:12","modified_gmt":"2024-04-23T16:53:12","slug":"demand-volatility","status":"publish","type":"blog","link":"https:\/\/www.shipbob.com\/uk\/blog\/demand-volatility\/","title":{"rendered":"Demand Volatility: How To Be Prepared For Demand Fluctuations"},"content":{"rendered":"\n

Table of Contents<\/p>

** Minutes<\/p><\/div><\/div>\n

What is demand volatility?<\/a><\/p>\n\n\n\n

What causes demand volatility?<\/a><\/p>\n\n\n\n

Can demand volatility be measured?<\/a><\/p>\n\n\n\n

How do you predict demand volatility?<\/a><\/p>\n\n\n\n

Demand volatility strategies to consider <\/a><\/p>\n\n\n\n

How ShipBob and Cogsy help with demand forecasting<\/a><\/p>\n\n\n\n

Demand volatility FAQs<\/a><\/p>\n<\/div>\n\n\n\n

If the past few years have taught us anything, it\u2019s that consumer demand<\/a> can fluctuate wildly \u2014 and quickly. <\/p>\n\n\n\n

With the intense ups and downs of demand, switching up your supply chain management <\/a>strategies fast enough to adapt to ever-changing consumer trends is tough. <\/p>\n\n\n\n

That\u2019s why these seismic shifts, known as demand volatility, are so challenging.<\/p>\n\n\n\n

But with the right software monitoring crucial inventory metrics<\/a>, you can be more proactive when it comes to demand volatility. <\/p>\n\n\n\n

You can prepare for sudden surges (or drops) in demand. And you can improve inventory optimisation<\/a> with the right amount of inventory available to meet demand.<\/p>\n\n\n\n

The result? More revenue and<\/em> a leg up on the competition.<\/p>\n\n\n\n

What is demand volatility?<\/h2>\n\n\n\n

The definition of demand volatility refers to any variation in product demand that hits suddenly or unexpectedly. <\/p>\n\n\n\n

While demand volatility has many causes, changing consumer expectations are most often the culprit. Today, customers want retailers to provide a wide product selection at a low cost. And they expect those products to be available when they want them. <\/p>\n\n\n\n

According to Forrester researcher<\/a> published on Forbes.com, shoppers will continue to spend money but will be more selective in 2023. In other words, your customers want to squeeze the most value from their purchasing experience.<\/p>\n\n\n\n

Additionally, having endless options in terms of product price, choice, and availability really puts the consumers in the driver’s seat (rather than manufacturers or retailers).<\/p>\n\n\n\n

Customers are now the ones who dictate manufacturing schedules based on their buying habits. And you need to always have the right SKUs on hand to meet these expectations. <\/p>\n\n\n\n

A perfect example is the notorious toilet paper shortage in the early days of the COVID-19 pandemic. <\/p>\n\n\n\n

As millions of people suddenly panic-bought toilet paper in bulk, shelves sat empty as manufacturers struggled to adjust their forecasts and produce more inventory.<\/p>\n\n\n\n

In short, greater customer influence (and control) is a driving force behind demand volatility. Customers can (and do) change their preferences\u2014buying more or less of your products\u2014ultimately creating an unpredictable situation for fulfilment.<\/p>\n\n\n\n

What causes demand volatility?<\/h2>\n\n\n\n

As we pointed out, shifting shopper preferences and trends are a major factor in demand volatility these days. But that hasn\u2019t always been the case, nor is it the only driver for shifts in demand.<\/p>\n\n\n\n

Traditionally, supply chain processes used a push-driven strategy, where products move through the supply chain from production to the retailers. With this approach, production is based on demand forecasts<\/a> and retailers get products before a customer orders them.<\/p>\n\n\n\n

These days, ecommerce supply chains<\/a> are slowly becoming pull-driven (or demand-driven). In a pull-driven supply chain, production and distribution are guided by actual customer demand. That is, retailers only order inventory as needed to meet customer demand<\/a>. <\/p>\n\n\n\n

But here\u2019s the thing: Neither strategy is perfect. <\/p>\n\n\n\n

Push-driven supply chains can leave your brand overstocked<\/a> (like Adidas<\/a> not being able to offload its Yeezy merchandise) and wreck your margins in a big way. Meanwhile, pull-driven strategies are harder to wrangle as demand grows increasingly volatile.  <\/p>\n\n\n\n

While there are lots of reasons for volatility within pull-driven supply chains, two of the biggest culprits are changing customer expectations, as we mentioned, and the lingering effects of the pandemic.<\/p>\n\n\n\n

Changing customer expectations<\/h3>\n\n\n\n

Today\u2019s customers want a variety of products to choose from at the lowest cost possible, and they want them now. But customer demands weren\u2019t always as “demanding” as they are today. <\/p>\n\n\n\n

Customers of the past didn\u2019t emphasize convenience and on-demand product stock availability<\/a> as much as modern shoppers.<\/p>\n\n\n\n

Unfortunately, a pull-driven supply chain has a hard time keeping up with these constantly evolving expectations. After all, customers change their minds faster than most supply chains can adapt.<\/p>\n\n\n\n

What happens when supply chains can\u2019t keep pace with demand volatility? You\u2019ll start to see plenty of backlogs in shipping and fulfilment.<\/p>\n\n\n\n

That\u2019s why employing robust supply chain strategies that adapt to demand volatility from the start is so important. <\/p>\n\n\n\n

Impact of the pandemic<\/h3>\n\n\n\n

To put it lightly, retailers have gotten a serious case of whiplash in the last few years. <\/p>\n\n\n\n

Shortages and shuttered factories (mostly due to the pandemic) forced push-driven retailers to quickly move to a pull-driven approach (and vice-versa).<\/p>\n\n\n\n

When the lockdown was in full effect in 2020, companies selling cleaning supplies<\/a> and disinfectants couldn\u2019t keep stock on their shelves due to high consumer demand. <\/p>\n\n\n\n

On the flip side, companies selling non-essential goods were left with tons of unsold inventory as demand for their products plummeted. <\/p>\n\n\n\n

Even companies that built resilient supply chains<\/a> saw stockouts and supply chain bottlenecks<\/a> galore. Meanwhile, supply chain teams tried to amp up their manufacturing amid massive labour shortages<\/a>. <\/p>\n\n\n\n

While many argue that the pandemic has made customers more forgiving about stockouts and shortages, the point is that disruptions still plague brands. <\/p>\n\n\n\n

So, what can retailers (and distributors) do about it? Start by measuring how much demand volatility your brand is susceptible to.<\/p>\n\n\n\n

Can demand volatility be measured?<\/h2>\n\n\n\n

Even though demand volatility can<\/em> be measured, it’s not easy or always 100% accurate.<\/p>\n\n\n\n

Understanding demand volatility requires more than your available internal data. You’ll also need to look at a variety of external factors: <\/p>\n\n\n\n