Coping with Demand Volatility

Companies can take a number of actions to cope with demand volatility. These include, as shown in Fig. 2.5, holding inventory, building excess capacity, using flexible technology, and managing risk with financial securities. 

---

Inadequate inventory causes delays to customers, resulting in negative utility. Therefore, a popular way to cope with demand volatility is to hold inventory, which can be expensive. Inventory acts as a hedge against demand volatility as suppliers can dip into it in times of high demand. The used items are made up and inventory is built up to its original level during periods of low demand, thereby... 

Structural flexibility reflects the ability of the supply chain to adapt or reconfigure its architecture in response to major changes on the demand side or the supply side. Supply chains with high levels of structural flexibility are well able to cope with the levels of volatility that are a feature of the twenty-first century business environment. 

---