Managing the balance between supply and demand is critical to company success.
For supply, you must consider how to source your product and there are some value-creating factors that go beyond labor costs.
· First, geographically, can you source and assemble the product close to the final demand in order to reduce
post-production transportation costs?
· Second, where is there increased access to talent?
· Third, how do you hedge production risk – geopolitical, currency and other risks?
Pricing is a primary component of the “demand” side of the equation. This includes:
a) Scenario analysis: assess variable costs, fixed costs, volume and margin
b) Sensitivity analysis: assess the demand elasticity with price changes
Does your company know what demand increase is expected if price decreases? What volume increase is required to make up the price decrease difference? Is the sourcing prepared for demand fluctuations?
