What is a Demand Chain?

Mary McMahon

A demand chain is a collection of entities that buy and sell products and services produced by a company, including distributors, wholesalers, retailers, and end consumers. Fluctuations in the demand chain drive demand for products and services, pressuring companies to increase or decrease production and make adjustments to the supply chain to make sure there are enough materials available. Companies may use demand chain modeling to manage their outputs and other activities.

Companies can control supply of their products and influence demand for them.
Companies can control supply of their products and influence demand for them.

Companies can manipulate demand in a number of ways. The more companies market and promote their products, the higher the demand will be. Sales and service tactics can also play a role in the demand chain. Customers will seek out the best goods at the best price in most situations, creating an incentive for a streamlined demand chain. If customers have to change stores to get goods, or change product loyalties because of a shortage in supply, this will hurt the company's bottom line.

While customers control demand, a company can use tactics to try and manipulate consumer demand. These tactics can range from decreasing demand in peak periods to make sure enough will be available to increasing demand to move product by doing something like cutting prices to appeal to hesitant buyers. The various steps of the demand chain are also subject to manipulation, as seen when companies offer promotional discounts to retailers or work with wholesalers to increase the movement of products.

Supply and demand interplay with each other. Historically, there has been a focus on the supply chain, with less interest in trying to control demand. Demand chain management allows companies to think ahead with management of both supply and demand; rather than responding to changes in demand in a reactive model, they create changes in demand in a controlled setting. This can improve efficiency and allow a company to serve customers more effectively than it might in other circumstances.

Marketing professionals, supervisors, and others can be involved in demand chain management. Companies with an interest in their demand chains may interact more with wholesalers and distributors, rather than focusing on getting products off the production line and letting people further down the chain deal with the process of getting those products into the hands of consumers. This can include more interactive promotions with retailers and other activities like holding meetings to get feedback on the success of ad campaigns in a given distribution region.

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