Law #4: In Supply Chain Risk Management, Demand Trumps Supply

This chapter describes the link between supply and demand. In the supply chain risk management, supply chain is often considered to be a slave to demand. Supply chains are extremely vulnerable and volatile, because demand is ultra-sensitive to both perceived and real threats. If demand unexpectedly increases, supply is depleted. In response to the shortage of demand, the organization will seek other means to fulfill and move supply. Thus, the decrease in demand requires supply chain configuration to be adjusted–usually permanently–to respond to the demand paradigm. The demand factors that have a significant and permanent effect on supply chains are: product obsolescence and loss of confidence. Extreme volatility in demand over short time intervals will have magnified effects not just to supply, but also to the strategic design of existing supply chain configuration. Most of the business activities are dependent on the demand based strategies.