How to cope with fluctuations in customer demand: potential solutions against the backdrop of a tight labor market

Do you like to hire temps to handle peaks and troughs in customer demand? With today’s tight labor market, you’ll require new solutions.

Customer demand tends to fluctuate. In the past few decades, many organizations have used part of the labor force to adjust to these fluctuations. Working with temporary employees is easy, as it allows them to scale up and down according to their current needs. It’s also enabled them to reduce inventory and avoid potential overproduction. Usually, the only requirement is to have sufficient machine capacity to produce at peak level.

But times have changed. Today’s labor market is tight, and with the aging of the Dutch population, it’s not likely to change in the short term. So, chances are that most companies will find it difficult to cope with peaks and troughs in customer demand by hiring temps. Moving forward, what is the right strategy?

Laying the groundwork: map out your own situation

Now that the outer world has changed, it’s important to thoroughly understand your company’s cost structure. Is your machinery very expensive? Then you can’t afford overcapacity in that area. If you spend a lot on your labor force, you should help your employees maximize their productivity. By mapping out your cost structure, you’ll be able to define the best options for your situation.

Second, you should have a close look at your machinery’s and employee’s productivity. When it comes to the latter, make sure to study the experience curve. Are senior employees more productive than their junior co-workers? If so, how can you leverage their experience?

Once you’ve perused your situation, investigate fluctuations in customer demand. Is it a market phenomenon? Or do these fluctuations stem from your customers’ behavior — the bullwhip effect? For example, some companies may buy far less from you whenever their customers buy less from them — during these times, they lower their own inventory levels and therefore strongly reduce their purchase orders. This may cause huge fluctuations in your supply chain!

Moving forward: 5 potential solutions

Time for a new strategy

Has today’s tight labor market affected your organization? And are you looking for new ways to deal with fluctuations in customer demand? Then it’s time to investigate your situation and create a new strategy. Determine the most realistic options for your company and adapt your way of working to your findings.

Make sure to involve your customers in the process. They might struggle with the same issue, so chances are you can help each other out.