Supply Chain Dynamics – Demand Management

In crises managers are pressured to improve the financial position of the company at the same time that demand levels are dropping dramatically. This typically leads to strategic decisions such as reducing inventories (to reduce the level of working capital), downsizing (to reduce operational expenses), and closing manufacturing facilities (to reduce fixed assets). These decisions, however, have substantial operational consequences when demand increases at a later stage: the reduction of inventory levels, workforce, and manufacturing facilities are decisions that require significant time to be reversed. If the situation that triggered such decisions is temporary and demand recovers faster than the speed at which firms can react, lost sales and general problems with inventory management will appear.