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
- What can you do to easily hire temporary employees? You could offer people a more attractive salary. Another option is to look for countercyclical companies and ‘exchange employees’ whenever necessary.
- Can you deal with fluctuations by training employees from department A to work in department B? Multi-skilled people can partly solve the problem, especially since fluctuations at the company-wide level are less extreme than at the department level.
- Is it possible to create a buffer? You might be able to manufacture products for the future during quiet times. If you do so, you’ll have to be fairly certain customers will order these products in the future. Alternatively, you can use these quiet times to complete other tasks that are not time-critical (e.g. preventive maintenance and seasonal cleaning).
- Are delivery lead times flexible? Some customers won’t mind if you deliver their products a few weeks after they’ve placed their orders. Especially those who stock up will likely be okay with that. Keep in mind that your customers’ production facilities also have limited capacity to process your products.
- Can you anticipate customer needs? Making forecasts about customer demand helps you plan the manufacturing of your products with reduced risk. You can anticipate customer needs based on internal knowledge, but it’s also possible to collaborate closely with your customers — by exchanging information, you can both work more effectively. Sharing end customer consumption through the supply chain is still a very valid approach to countering the bullwhip effect.
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.