Uncertainty in Supply Chain Management

A hard to manage factor in Supply Chain Management is uncertainty. As the world is getting smaller, with trade flourishing across borders, Supply Chain Management in India also faces the challenge of uncertainty in a big way.

We live in an uncertain world. Supply chains should be equipped to face these uncertainties. The world faces economic uncertainty and complex business systems. The challenge that the decision makers of supply chain strategies face is that their decisions could become uneconomic due to uncontrollable forces. They need to find a supply chain solution to face the uncertainties.

Management of uncertainty involves the overall effective management of the process from procurement of raw materials to delivery of finished goods to the end customer.

When a company manufactures a product, it needs to assess the demand in the market for that particular product, based on which the quantity of supply is decided. In addition, it needs to assess the uncertainty it faces while supplying the product. The manufacturer has to know the extent of unpredictability of demand and the probability of delay in the delivery of the product to the customer.

The manufacturer also has to understand the respective needs of customers that he intends to serve. If there are two companies, Company X and Company Y, customers prefer going to Company X because it is available in the nearby store. So one can presume convenience is important for the customer, not the price. However, customers may buy a product from Company Y because it is sold at a lower price. In this case, the customer is willing to wait if the product is not immediately available. The factors influencing the demand of customers vary for different segments and depend on the following factors:

Quantity of Production:

The order of raw materials to repair a production line is comparatively low. If you have to set up a new production line, the material order would have to be large.

Response Time:

The time difference between the customer’s order for a product and the delivery is known as the response time. In case of an emergency, response time has to be short. However, for a construction order, the response time is longer, because it is an accepted fact that procurement and delivery of raw material would take longer time.

Product price:

Usually, a customer whose demand is urgent is ready to pay a high price for a product. If a customer finds the price to be too high, he may either look for a cheaper alternative. Some customers also look at the quality of the product. If the quality is high, it means the product can be used for a long time period. Thus, the customer will be ready to pay a higher price for better quality.

Innovation:

A customer expects a high level of innovation from a high-end department store as compared to a general store. A customer will not expect innovation from a general store.

These factors are true for supply chain management in India or any other country, and are an iota of the vast subject of uncertainty.