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The demand for a certain product is considered seasonal if the underlying time series are subject to a predictable cyclic variation. The seasonality of demand, as a rule, depends on the time of the year. It is one of the statistical features, which is most commonly used to improve the accuracy of the demand forecasts. It is crucial to analyse the aspects of seasonal demand to be able to understand its implications for the suppliers, retailers, and clients.
Seasonal Demand
The seasonality of the demand implies the periodic changes in demand that depend on various factors. Varley (2014, p. 147) stated that ‘the seasons in the year influence product availability and demand’. However, seasonality cannot be tied to this aspect exclusively. The presence of seasonality can be identified when the peaks and downturns in sales are observed over several years. It should be noted that in such months as of December or January, it is more appropriate to analyse the weekly sales instead of monthly as 80% of sales in this period can occur at Christmas holidays.
Typically, the seasonal cycle is one year but the demand fluctuations can be observed during a week or even within one day. Nevertheless, such fluctuations in demand should not be considered as seasonal (Varley 2014). It can be justified by the fact that no special actions are needed to equalize such fluctuations, it is necessary to understand such features of business and consider them when planning operations and performance.
Typically, two kinds of seasonal demand can be identified such as the seasonality of production and consumption. Both types can lead to downturns in sales but the seasonality of production is less adjustable and is more complex. The seasonality of consumption can be caused by several factors. As mentioned earlier seasonality may depend on the time of year. Fluctuations in demand depending on the time of year relate primarily to changes in weather, climate and are influenced by the consumer characteristics (Varley 2014).
Furthermore, seasonality of demand is the consequence of the necessity of certain products and services at specific times of the year. However, the possible fluctuations in demand may not be connected to these factors and are categorized as consumer habit or a settled pattern (Varley 2014). It is worthy of mentioning that most often, the different causes for seasonality are superimposed on each other and lead to smoothing the peaks and downs or, on the contrary, strengthening them.
Seasonal Demand and Suppliers
As a rule, the level of seasonal fall or rise in demand follows the same pattern yearly. However, the specifics of the business and the region a company operates in are of great importance for the suppliers. The efficiency of suppliers depends on the total costs in the supply chain as well as the stability of this circuit.
The suppliers have to consider the implementation of delivery plans, which depends on the types of contracts. Recent studies have shown that the application of a particular type of contract may significantly affect the efficiency of the supply chain (Kersten 2011). For instance, some companies use regional production contract to address the seasonal increase in demand.
The suppliers have to consider different aspects of contracts that ensure addressing the issue of seasonal demand in the most efficient way. Firstly, the contracts should ensure the availability of products and profits of the supply chain (recurrent contracts that involve the return of the unsold goods) or consider the profit-sharing (fixing of the sale price between the manufacturer and retailer with the division of profit on sales).
Also, there are options when contracts dwell upon the delivery volume variables (retailer will be able to change the number of purchased goods immediately based on the demand forecasts). Secondly, the contracts should conclude the purpose of coordination costs in the supply chain, in particular, the contracts aimed at increasing the activity of agents or contracts to improve the work performance (for instance, the QR concept when the buyer may require faster delivery times and reduce production time in the case of a seasonal increase in demand) (Kersten 2011).
In general, the contracting problem is one of the leading ones. The form of contracts in the supply chain depends strongly on the distribution of risks, which, in its turn, is one of the determining factors in the choice of methods of planning and management of supplies. Also, the supplier should work more closely with the manufacturer and engage in self-improvement of logistics taking into account seasonal demand. The competence in logistics is achieved through the coordination of activities such as the formation of logistics infrastructure, information exchange, transportation, inventory management, maintenance of the storage facilities, cargo handling and so on (Kersten 2011).
Further, modern technologies enable meeting the bulk of the information requirements. The control systems such as just-in-time and others are examples of logistics management models that assist suppliers in facing the seasonal demand issues effectively (Kersten 2011). Also, transportation is usually organized in three main ways, which include the private vehicle fleet, a contract with a specialized transport company or the combination of different types of transportation means, which provide various transportation services that cater to the individual needs of customers.
Supplier Strategy
Suppliers need to utilize effective strategies to meet seasonal demand. For instance, they can use the VMI technology, which is considered with all the needs and characteristics of supply chains. The suppliers will have access to information about the level of stocks at the customer’s warehouse or distributor’s stock of their inventory categories and will be able to create purchase orders for the customer.
According to Kersten (2011, p. 359), ‘with the use of tools CPR, VMI and QR as a complement to the postponement of form and time, will better manage the risks of uncertainty, and allows the application of statistical tools’. In this case, the agreements will be based on close cooperation between the client and supplier upon forecasting, planning, and replenishment of stocks, which implies the exchange of information and risks.
With the help of this strategy, the supplier will receive information about the stock and sales of the distributor channel system via EDI (electronic communications) or the Internet. The supplier will have access to every item, which is stored at the distributor’s facilities, and will be able to check the current sales as well as assume the function of placing orders for the maintenance of distributor’s stock (Kersten 2011). As per this strategy, the ownership will remain the same as without the use of VMI technology.
Thus, the VMI can be applied with the use of registration of the goods as well as without it. The CPFR, Collaborative Planning, Forecasting, and Replenishment have been developed to improve, assist, and support the integration of the supply chain. It provides the best practices for joint inventory management, replenishment, and forecasting of the commodity.
The information is shared with the supplier and the buyer’s demand can be addressed in the continuous process of inventory replenishment taking into account all the needs and characteristics of supply chains. The efficiency is achieved by reducing the marketing costs, freight audit, logistics, and transportation costs for all the parties involved.
List of References
Kersten, W 2011, International supply chain management and collaboration practices, BoD – Books on Demand, Hamburg.
Varley, R 2014, Retail product management: buying and merchandising, Routledge, London.
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