Posted in Operations and Supply Chain Terms, Total Reads: 3413
Definition: Abnormal Demand
An uncommonly high product demand that is outside the normal parameters established by the management policy is called an Abnormal Demand. An Abnormal Demand may occur due to a promotion, price break or substitution.
Abnormal demand may possibly emerge from a new customer or from existing customers whose individual demand is either increasing or decreasing. Managing abnormal demand is a challenge for demand and supply organizations as this is unplanned yet significant demand. Also, the customer might not buy this product in a large quantity again, so the company’s performance in handling the abnormal demand is detrimental in deciding the future relationship between the customer and the company.
Examples of Abnormal Demand:
• A Confectioner was asked to supply cakes and candies for the golden jubilee celebration of an MNC. The event welcomed 6,000 guests.
Such a grand event might not occur in the area for many coming years. The downside of the abnormal demand was the disruption in the production and the need to re-plan the manufacturing schedule.
The upside was the boost in the revenue and promotion of the company and its products. Should the company accept the order to supply 1 million candies and 200 cakes for the celebration?
• A major producer (A) of noodles lost its market share due to the entry of a larger competitor (B) in the market. Company B offered the noodles with more varieties and at a lower price. After 2 years, B’s noodles were called off from the market due to quality issues.
Now, due to recall, consumers were forced to look for alternatives, giving company A, an opportunity to regain their market share. The issue was not only to accept the abnormal demand but to manage the quality issues and customer satisfaction as well.
In both the case examples presented above, the company needs to define the process for managing the abnormal demand and the most effective way to fulfill the demand from customer service, cost and profit points of view.