A guide to choosing a supply-chain strategy
The same business model can yield excellent results when demand is stable, yet lead to significant losses when faced with seasonal fluctuations. Experts from Sargona Private Capital have explained how to choose the right business model and what factors need to be taken into account.
Demand varies for different products. Some are bought consistently all year round, others are only needed in season, whilst sales of a third may surge sharply before quickly becoming obsolete.
If sales are steady, it is more cost-effective to plan purchases in advance and buy in bulk. This reduces costs. However, if demand is volatile, this approach will be ineffective. According to research, six out of ten companies overpay by up to 25% because the supply chain cannot keep up with sharp fluctuations in demand. Experts at Sargona Private Capital Ltd believe that in such a situation, speed is key - multiple suppliers and fast delivery.
If sales are steady, it is more cost-effective to plan purchases in advance and buy in bulk. This reduces costs. However, if demand is volatile, this approach will be ineffective. According to research, six out of ten companies overpay by up to 25% because the supply chain cannot keep up with sharp fluctuations in demand. Experts at Sargona Private Capital Ltd believe that in such a situation, speed is key - multiple suppliers and fast delivery.
Flexibility in logistics is useful, but it comes at a price. Express delivery costs more than standard delivery. Additional warehousing, staff and equipment increase costs. If demand is stable, such expenditure is unnecessary - it reduces profits. According to statistics, holding stock costs 15–30% of its value per year. Flexibility is needed where demand fluctuates frequently.
Why different demand requires different logistics
When flexibility becomes too costly
Managers at Sargona Private Capital point out that what generates profit for one company may cause problems for another. For example, a strategy of keeping stock levels to a minimum works well for some, whilst for others it leads to constant shortages. Large warehouses provide stability for some, whilst for others they result in dead stock and unnecessary costs.
Why copying other companies’ models doesn’t work
Sargona Private Capital Ltd, which specialises in optimising logistics processes, has provided a brief analysis of each type of supply chain strategy, highlighting their advantages and disadvantages.
The minimum stock strategy. This is an approach whereby a small stock of goods is kept in the warehouse, but it is regularly replenished in small batches. Suitable for goods with stable and predictable demand.
Safety stock strategy. This is a system whereby, in addition to the main stock volume, a reserve is kept in the warehouse in case of a sudden surge in demand or delivery delays. It is suitable for goods where stock-outs are critical and demand may rise unexpectedly.
Pull strategy (pull system). In this model, goods are purchased only when there is actual demand. Suitable for goods with unstable demand or custom orders.
Forecast-based strategy (push system). Goods are produced in advance and delivered to the warehouse based on sales forecasts. Suitable for goods with stable or easily predictable demand.
Hybrid strategy. Some goods are managed based on forecasts, others on actual demand. For example, popular items are kept in stock, whilst rare items are made to order. Suitable for companies with a wide product range.
Fast delivery strategy. Minimal stock is kept in the warehouse, but there is a well-established system for rapid restocking. Suitable for companies where speed of response to demand is important and there are reliable suppliers.
The minimum stock strategy. This is an approach whereby a small stock of goods is kept in the warehouse, but it is regularly replenished in small batches. Suitable for goods with stable and predictable demand.
- Pros: capital is not tied up in stock, and the warehouse is not overloaded.
- Cons: delivery delays or forecasting errors lead to shortages and lost sales.
Safety stock strategy. This is a system whereby, in addition to the main stock volume, a reserve is kept in the warehouse in case of a sudden surge in demand or delivery delays. It is suitable for goods where stock-outs are critical and demand may rise unexpectedly.
- Pros: lower risk of shortages.
- Cons: storage costs increase due to excess stock.
Pull strategy (pull system). In this model, goods are purchased only when there is actual demand. Suitable for goods with unstable demand or custom orders.
- Pros: almost no excess stock, minimal warehousing costs.
- Cons: requires fast logistics; any delays from suppliers are critical.
Forecast-based strategy (push system). Goods are produced in advance and delivered to the warehouse based on sales forecasts. Suitable for goods with stable or easily predictable demand.
- Pros: fast dispatch to customers, savings on bulk purchases.
- Disadvantages: forecasting errors lead to surpluses or shortages.
Hybrid strategy. Some goods are managed based on forecasts, others on actual demand. For example, popular items are kept in stock, whilst rare items are made to order. Suitable for companies with a wide product range.
- Pros: balance between speed and costs, flexibility for different products.
- Cons: more difficult to manage; requires separating products and correctly configuring processes.
Fast delivery strategy. Minimal stock is kept in the warehouse, but there is a well-established system for rapid restocking. Suitable for companies where speed of response to demand is important and there are reliable suppliers.
- Pros: no need to hold large stocks, can respond quickly to changes in demand.
- Cons: dependence on suppliers and logistics; disruptions lead to shortages.
Types of supply chain strategies
Your wishes are our priority
© 2023 - 2025 All rights protected
