Volumes and Volatility in Supply Chains

Two of my 7V’s are volume and volatility. I have examined volume and volatility as part of my research into supply chain performance across a number of firms in different industries and in different geographical settings. I also worked on supply chain projects with firms in different industries to develop improvement strategies where volatility in demand and volume oscillation caused problems.  So let’s look at the causes of volume volatility.Causes of volume volatilityVolume is a throughput measure in a supply chain from the point of entry to the point of delivery. In a continuous supply chain there might be several suppliers of raw materials and a number of interconnected organizations that make up the whole supply chain through to the final customers. Mapping a supply chain and the process steps will create visibility and allow the analyst to determine just how interconnected the supply network is.  This is the first step in finding the cause of disruptions and the likely risks. Supply chains connect organizations at nodes within the chain or network. For example, sourcing raw materials from a supplier is an output for the supplier and input to process for the purchaser. Let’s look at a simple example to illustrate this.   An example would be wheat harvested by the raw material supplier is milled and flour is their output. This is a raw material input to the production hub and they might produce two product lines bread and cakes. The bread and cakes are finished goods outputs from the baker production hub and these are now distributed to wholesale and retail outlets before the final customer consumes the products. Within the supply network information is exchanged as is payment and of course the materials including raw materials and finished goods.Upstream we have farmers then millers and bakers. Each of these is removed from the final customer where demand is triggered in a retail store. You or I walk in search for products we want to buy and pay the retailer. As we do so the bleep at the checkout registers the sale and lowers the stock keeping units (SKU) we purchase by how many we buy. The data are stored in the retailer system and as sales rack up at the stores stock is lowered in the system until it triggers an order to the supplier of finished goods. In our example this is the baker. The baker will order more flour from the mill and the millers will order more wheat from the farms. Even in this simple example you can see that at each node there is an opportunity for disruption to occur in the supply chain. In this supply chain the retailer will have data that shows established daily, weekly and monthly sales patterns for the product. There are possible disruptions at each stage of a supply chain from harvest, to shipping of wheat with ships delayed or damaged in storms, road transport disruptions on land, equipment breakdowns or strikes at a flour mill or at the bakery or some or all of the firms in the supply chain may become insolvent. So there is plenty of scope for disruptions to occur even in this relatively simple supply chain. So imagine the opportunities for disruption that exist in more complex supply chains.System DynamicsIn the types of situation described when demand volatility oscillates throughout the supply chain we experience what Jay Forrester called system dynamics taking over from any planned or controlled flow through the supply chain. The Forreseter Effect is often referred to as the ‘Bullwhip’ since the dynamics within a supply chain oscillate as demand signals are amplified.Send us Fan MailSupport the show THANKS FOR LISTENING PLEASE SUPPORT THE SHOW You can support the podcast by following the link here. It makes a big difference and helps us make great content for you to listen to. Follow like and share the Chain Reaction Podcast with colleagues and friends on social media: Facebook, Twitter, LinkedIn.News about forthcoming programmes click hereSHAREPlease share the link with others so they can listen too https://chainreaction.buzzsprout.com/shareLET US KNOWIf you have any comments, suggestions or questions then just direct message on Linkedin or X (Twitter)REVIEW AND RATE If you like the show please rate and review it. Every vote helps.About Tony Hines and the Chain Reaction Podcast – All About Supply Chain AdvantageI have been researching and writing about supply chains for over 25 years. I wrote my first book on supply chain strategies in the early 2000s. The latest edition is published in 2024 available from Routledge, Amazon and all good book stores. Each week we have special episodes on particular topics relating to supply chains. We have a weekly news round up every Saturday at 12 noon. ...