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Understanding the Balance Between Supply and Demand

Understanding the Balance Between Supply and Demand

Understanding the Balance Between Supply and Demand
Image via Flickr by david.nikonvscanon

Achieving a perfect balance between supply and demand is one of the biggest challenges of supply chain management and business operations. From pharmaceuticals to renewable energy, supply and demand affects everyone, regardless of industry.

Price Affects Supply and Demand

Dropping the costs to consumers is an effective strategy to increase demand in most industries. Sometimes, lower prices occur naturally in the supply chain as technology or manufacturing processes advance, but this isn’t always beneficial to every company. The solar industry in Tennessee is struggling with supply/demand limbo.

Solar manufacturers are laying off employees and experiencing cutbacks as they deal with price reductions, but installation contractors are enjoying an increase in orders. The industry is still healthy and growing, a sign that the polysilicon plants will bounce back with the right strategies.

Price Isn’t Always a Factor

Supply and demand in the oil industry is often an indicator of the temperature of the national economy. The price of oil, however, is not always related to the current supply and demand. In response to record high oil prices on January 18, IEA executive director, Maria van der Hoeven said, “The strange thing is that though demand is sufficiently supplied, the price is high.” Hoeven says this could be due to speculations and expectations of a poor economic future. The increase in price will have an impact on demand regardless of the reason.

The medical industry is also struggling to balance supply and demand as flu season reaches its peak across the nation. The challenge is in no way related to pricing. It’s just too difficult to forecast the demand from one day to the next. “Today, we could be getting 30 doses in, and that could be sufficient, but that can be gone in 20 minutes depending how many people walk in the door,” said Cheryl Fattibene, PA manager of Minute Clinic.

Fluctuations in supply and demand are a natural part of the business cycle, influencing price as well as future innovation. Adapting to these changes isn’t always easy for any sector of the market.

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