Calculating Supply and Demand Requirements

Understanding Supply and Demand

Supply and demand are fundamental concepts in business. Demand refers to the number of goods or services customers are willing to purchase, while supply refers to the amount of goods or services a business is able to produce and make available.
In relation to purchasing, businesses need to understand their levels of demand in order to calculate how much supply they will need from suppliers.
Market research is a key tool businesses use to anticipate customer demand and inform their purchasing decisions. This can be done through various methods such as customer surveys, focus groups, or analysing sales data.

Demand Forecasting

Demand forecasting is the process of predicting future demand for a product or service. This prediction can be based on past sales data, market trends, economic indicators, or other relevant factors.
This forecast will inform the quantity of goods or services a business should buy to adequately meet anticipated demand. Over- or under-estimating this can lead to wasted resources or missed sales opportunities.
An important aspect when forecasting is understanding seasonal demand variations. Some products or services might have higher demand at certain times of the year.

Supply Management

Supply management is about ensuring that the business has the right amount of goods or services available to meet demand. This ties in closely with inventory management.
A helpful supply management method is Just-In-Time (JIT) inventory system, where businesses order supplies only when they’re needed, reducing inventory costs and waste.
Establishing reliable supplier relationships is critical, because suppliers need to be dependable to deliver the necessary goods or services in a timely manner to meet the demand needs of the business.

Stock Control

Stock control or inventory management is about keeping track of what’s in stock, what’s on order, and when new purchases will arrive.
Businesses often use stock control systems like First-In-First-Out (FIFO) or Last-In-First-Out (LIFO) to manage their inventory.
Good stock control ensures there’s enough supply to meet demand without tying up too much capital in unsold goods.

Overall, managing supply and demand in purchasing is all about balance. A business must anticipate the quantity of goods or services its customers will want, and coordinate with suppliers to ensure these needs will be met.