Effects of Weekly Volume Leveling (E)
What are the effects of uneven weekly volume level? What are the methods of weekly volume demand leveling?
Posted: Jun 2009
The Company XY that sell Soft Drinks is the market leader within their market niche. This was done by smart marketing concept, strong brands positioning, product quality and aggressive positioning in the outlet. This positioning is done through negotiation, profit story presentation, discounts related to sold volume and supported by the strength of the brand.
One of methods of providing the market leader position is enforcing the progressive volume targeting to customers and the sales force. It is true that supply respond to the change of demand. But it is also true that the demand is influenced by change of supply. If the product is all around the market, well positioned in large quantities, that creates that consumers to choose the product that is well exposed to the sight, simply because the impulse reflex: I see, I want, I buy.
The Company XY is creating a significant success in the market thanks to this commercial policy. But this policy of aggressive loading of the market with the products makes sales channels saturated with the products. Once the sales outlets are full, they begin to resist slowly to new shipments, since they are not sure will they be able to sell current stock. Further stocking will overload capacity, reduce the cash flow and potentially bring expired products and write offs.
The slow sell in to outlets in the first part of the month is causing overstocking in company's warehouse. Also it creates the pressure to the distribution at the last week of the month.
This situation with concentration of volume within last week, or even worse to the last two days, is creating the tremendous impact to the Supply Chain. The company trucks are underutilized at the beginning of the month, while they are insufficient in the last week.
The company needs to rent the third party trucks. Even more, the 3rd parties are using the situation and charge extra for the rush orders. At same time the Company XY's warehouse is full at the mid of the month, since the production is loading the warehouse, but there is no sell out, until the last week.
In order to avoid this, the Company XY started up the Process Improvement Project with the activities in several directions. First direction was giving discount to the customers for achieving weekly volume targets, instead of monthly targets. Second direction was giving the incentive scheme based on weekly volume to the sales personnel to.
This incentive plan leveled the weekly volume demand level to appropriate level:
During the process of leveling of weekly volume, the very important segment is education.
Unbalanced weekly volume does not only occurs in situation when there is greater supply than demand, but also due to lack of planning or unawareness of complexity that wrong weekly volume phasing brings.
After all, proper volume leveling is contributing to cost efficiency, which is important segment on the journey to the competitive advantage.