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Home / Issues / № 2, 2014

PLANNING THE TIMING PARAMETERS OF DEMAND AND SUPPLY OF GOODS
Merkulova Yu.V.

Introduction. Year after year, growth of product competitiveness more and more depends on the timeliness and duration of product positioning in the market and level of prices. Therefore, the growth of expenses volume of production and time limit in obtaining success – are the major problems that should be solved by enterprises in the current economic environment. In the course of the conducted study [1] I recommended to introduce an indicator that can be described as a time factor into the main indicators of planning. The firm’s profits directly depend on complying of supply and demand with this indicator, i.e. their ability to reduce expenses and establish favorable prices, to achieve the best compliance between the prices and the product expenses of the firm. Competitive status of any firm depends on how it keeps pace with dynamically changing consumers’ needs in competitive markets. The firm, which enters the market with new products, and doesn’t copy someone else’s invention, obtains true success and immeasurably greater profit. Only with such products the firm can win the competitive positions not only in domestic, but also in global markets, to become “trendsetters” in the markets. Therefore, when planning product strategies and implementation programs it is important to study not only quantity, price and quality indicators of supply and demand in the current and long-term perspective, but also their tempo characteristics. Five stages were outlined in the life cycles of supply and demand. It was assumed that the stages of formation, acceleration, stabilization, slowdown and damping of demand shall comply with the following stages of product positioning in the market: introduction, supply growth, maturity, supply slowdown, exit. Graphic methods of analysis and forecasting were used to conduct the study.

Investigation results. Fig. 1 shows the curves of demand and supply quantity of product in phases of life cycle.

Fig. 1. Typical discrepancies between the quantity of product demand and supply in phases of life cycles

(designation: ( quantity of product supply and quantity of product demand; function of product supply quantity; function of product demand quantity; t – duration of life cycle stages of product and demand for it)

The Figure illustrates typical discrepancies. Neither product is introduced to the market in large quantities. Therefore, situation where the quantity of product introduced to the market lags behind the quantity of the forming demand for it is fairly typical. During the acceleration stage growth of demand for product also usually exceeds growth of supply for product. At the stage of stabilization balance is not always established between the quantity of demand and supply of product. Fig.1. shows that, depending on the rate of increase in product manufacturing quantity and duration of the stage of growth of demand at the stabilization stage supply and demand can be balanced or supply will exceed demand. If the trend of overproduction occurred, it is likely that it will continue in the next stages. At the stage of product exit, when the product does not bring due profit to the company, product supply may fall at a faster pace than demand for it. Thus, the graph (Fig. 1) shows at what stages we can typically observe quantity discrepancies of supply and demand between demand and product supply of the firm and, consequently, what kind of reserves has the firm for increasing its profitability at various stages of product positioning.

Similar typical discrepancies can be identified between price and quality parameters of demand and supply at different stages of product positioning in the market with the help of graphical study. At the stage of novelty implementation supply prices, as a rule, are higher than demand prices. Qualitative parameters of a novelty are usually higher than those of traditional product and comply with the level of prices, but at the implementation stage the product receives practical approval of the customers. In accordance with the reclamations received from the customers design technology improvement of product, which usually ends before the next stage of its market positioning, is carried out. Therefore, at the stage of growth of product supply in the market some discrepancies between supply and demand can remain unchanged, but usually its price and quality parameters comply with consumer needs in the best way. Any firm shall seek to achieve such compliance, as the stage of growth of demand usually has the highest sales volumes at the best prices for the product. From the stage of demand slowdown a typical task for any firm is to maintain demand for product due to lower prices on it, which requires reduction of production costs. Therefore, in the last stages of product positioning in the market price and costs optimization becomes a major factor in the balance of demand and supply and the firm success in the market.

Considered situations reveal the most typical quantity, price and qualitative discrepancies of demand and supply at concurrent time stages of supply and demand of product in the market. It is obvious that even in case of time compliance of life cycle stages of supply and demand their balance on the values of various parameters is not self-evident. It is the exception rather than the rule, and it is necessary to press for rapprochement of supply and demand. However, there are also time discrepancies. For example, when the demand for product appears before or after the time of its appearance in the market, and disappears before or after its exit. All these situations are knowingly loss-making for the firm, as well as much more negative. They show that the firm incorrectly calculated life cycle stages of demand for product and enter the market either beforehand, or, conversely, too late. Quantity, quality and price discrepancies between supply and demand arising out of this are much more difficult to eliminate. In case of time discrepancies the firm has a task to adjust not only indicators of production and marketing strategies, but also the tempo strategies of development, improvement of production and marketing of product that is much more difficult. For clarity, we are graphically depicting time discrepancies of supply and demand. In Fig. 2 curve “A” marked with dash-and-dot line characterizes the change in the demand quantity in a certain kind of product, and the curves “B” and “C” – the supply quantity for this type of product, respectively, with late and advanced life cycles.

Fig. 2. Influence of time discrepancies of life cycles stages of supply and demand on the quantity differences of demand and supply

(designation: ( quantity of product supply (product demand quantity) ; function of supply quantity for “C” product; function of demand quantity for product of one kind conditionally designated as “A”;function of supply quantity for “B” product; t – duration of life cycle stages)

Fig. 3. Influence of time discrepancies of life cycles stages of supply and demand on differences in their price indicators

(designation:product supply price and product demand price; function of supply price of “C” product; function of supply price of “B” product; function of demand price for product of one kind conditionally designated as “A”; t – duration of life cycle stages)

Fig. 2 shows the idealized curves and it is conventionally assumed that the time lags or advances of demand are equal to the duration of one stage, and these dislocations remain unchanged throughout the whole life cycle. Consequently, the product not only appears in the market before the demand, but also exits it before due time, and conversely, not only appears in the market with delay, but also is not phased out in due time. Considered situations of time discrepancies of product supply and demand stages are equally unprofitable for the firm. In the first case there is constant overproduction in the early stages and underproduction in the final stages of product positioning in the market, and in the second case – underproduction in the early stages and overproduction in the final stages. For the balance of demand and supply quantity it is very important to calculate the time of appearance of the product in the market accurately, not to be late with the quantity at growth in the demand for it and phase it out in time. However, it is equally important to take into account the time parameters in the formation of price indicators of product supply.

Graph (Fig. 3) shows the influence of time discrepancies of life cycles stages of supply and demand on the differences in their price indicators. Curve “A” marked with dash-and-dot line characterizes the change in the demand price and the curves “B” and “C” – the supply price, respectively, for late and advanced product life cycles. As we can see from the drawings, product price curves “B” and “C” do not cross the curve “A” because of time discrepancies of life cycles of demand and supply. If the firm is late with the introduction of a product to the market, it will lose to competitors on the price of product, as the prices for utilized and introduced products are always higher. Tempo discrepancies in time of appearance of the product and demand stages lead to disturbance of smooth production flow and either to too slow, or, conversely, to unduly accelerated pace of reduction in the price of the product. Thus, when the total duration of the life cycles of demand and product is equal, and duration of their individual stages concurs, time discrepancies of two kinds are possible.

1. In case of lag in the firm production from the needs of the market, its product life cycle will begin and end later than the life cycle of its demand. As a result, the firm will incur losses, because first it will suffer from underproduction and then – from overproduction, and finally, from non-realization of the products. Because of the desire to somehow repay expenditures of their production the firm will be forced to conduct inefficient pricing policy, slowing the rate of products sale.

2. In case of advanced steps of the firm product life cycle in the market begins earlier than the life cycle of demand for it, and ends prematurely, as it does not stand competition. Firm suffers losses, because at the introduction stage its product likely will not be realized or will be realized in miniscule amounts, the speed of its realization will be low and at the stage of damping of demand the product will exit the market and will not bring any profit. Extension of stages of the product life cycle in the market for the firms advancing demand and their shortening – for the firms being late with the supply may somewhat change the situation, but in any case, the firm will lose income. Any firm seeks to extend the life cycle of a product in the market by extension of the most effective stages of its supply. These are stages of growth and maturity of the supply. Therefore, the firm being late with the release of product in the market is in a more losing situation. First, the firm loses the opportunity to position product as a novelty, time of product being in stages of introduction and supply growth shortens automatically, the firm gives place to its competitors on both sales volume and price at these stages. Second, the firm’s product goes out of date faster, and it will have to reduce the product price, not even getting proper profit, and subsequently to take it out of production. Moreover, if the supply quantity is easier to adjust to demand, the elimination of price discrepancies is a more complex process. To reduce the price of the products there shall be corresponding conditions in the form of falling production costs or marketing costs. And under time pressure conditions it is very difficult to increase production volumes and to seek for reserves to reduce production costs. The firm will only increase the scale of production, and the demand is already falling, and production should be reduced. In these circumstances, the firm does not manage to get proper profit and especially to find reserves to reduce production costs. In addition, if the product didn’t manage to prove itself in the market, period of its introduction is very short, the firm can’t reduce the costs of its advertising and service activities. Consequently, marketing costs are also not the last to be determined by time parameters of positioning of a product. In this regard, the firm that has entered the market with the product before appearance of demand for it, incurs losses, but is favored to adjust its product strategy, as it at least has no shortage of time.

Lag or advance of the life cycles for a period of one stage in the lifecycle is a simplified situation. Longer lags or advances are possible in practice that only complicates the situation of the firm. There may be situations when the total duration of the life cycles of supply and demand and duration of their individual stages are not the same. It is obvious that both too early or late, and too long or short product life cycles in relation to the life cycles of demand will bring great losses to the firm. However, if the discrepancy between the individual stages of product supply and demand on time of their appearance is compensated by their duration on other stages, time balance can be established.

Fig. 4 shows examples of the imbalance of demand and product supply as a result of such time discrepancies.

Fig. 4. Imbalance of demand and supply quantities upon unmatched terms of appearance and duration of their lifecycles

(designation: (quantity of product supply (product demand quantity); function of supply quantity for “C” product; function of demand quantity for product of one kind conditionally designated as “A”;function of supply quantity for “B” product; t – duration of life cycle stages)

A dash-and-dot line in Fig.4 shows the function of demand quantity “A”, and dotted and solid lines show functions of the supply quantity of “B” and “C” products, which have different tempo and time discrepancies with graph of “A” demand. This is an indication of either insufficient calculation of the firm due to incorrect predictive estimates of consumer demand, or its inability to maintain a desired level of values of corresponding supply indicators within a certain period of time. For example, due to lack of financial resources, weak technical base, requiring significant technical upgrading, the firm can slowly develop manufacturing of product and extend the stage of introducing a product to the market, and even be late in its positioning. And due to slower product sales, long turnover of funds the firm may have great difficulties with the extension, providing necessary volume of production and thereby be late with the transition to the stage of product supply growth. At subsequent stages of demand the firm is already among those trying to “catch up”, it may not keep pace with the decline in demand price for the product and will be forced to take it out of production as the product will be in little demand, which will greatly shorten duration of the final stages of its market positioning. In such situations, it is very difficult to balance supply and demand. Imbalance occurred in the early stages of product positioning will be worse in the later stages. In case of such time discrepancies the firm will certainly bear lost opportunities, but it should at least strive to extend the duration of the most profitable stages of product positioning by shortening the least profitable and most problematic stages. This is the most difficult situation for adjustments. Maneuvers with extension of some stages by shortening other stages are very difficult, as most likely duration of stages of demand will also be in constant dynamics under the influence of various factors. In case of time adjustments under these conditions, we can only talk about minimizing losses. The firm will have to solve optimization problems on the approximation of the duration of stages of product positioning in the market to the demand stages being in dynamics.

Conclusions. To overcome time discrepancies, as well as price, quantity and quality discrepancies between supply and demand on the stages of product life cycle it is very important to find reserves for eliminating imbalance at the stages of product manufacturing, namely: upon research and development (R&D), organizational and technological process planning (OPP and TPP) and production itself. These stages are associated with each other and influence on the efficiency of each other. The efficiency of the final product is determined by the synergistic effect of each of its stages. How can balance of various indicators be planned taking into account the time aspect of supply and demand at the stages of product manufacturing?

Works on forecasting time of novelty appearance in the market should be conducted at the stage of research, as well as predictive estimates of anticipated duration of its life cycle should be given. For this it is necessary to calculate in detail the time of product demand formation, duration of demand stages, as well as manufacture time of this product. It is advisable to make forecasts regarding quantity, price, quality of product supply at different stages of its life cycle, in order to extend the duration of the most effective stages of the product being in the market – stages of growth of its supply quantity and maturity, bringing the greatest profit from the product to the firm, as well as to agree on the duration of supply and demand in order to avoid unreasonable losses and get all potential profit from the product for the firm. Research work can include combinations of different product programs. It can be programs of accelerated manufacture of new product and programs, extending the life cycle of products being already in the market, etc.

At the stage of development the designs of new product samples should be developed and products being already in production should be improved, taking into account time characteristics of demand. It is necessary to consider reclamations of the buyers, lowering of price parameters of demand, and therefore identify reserves of design-engineering improvement of product, improvement of its quality and reduction of costs. However, development stage can not only change the product parameters for the requirements of demand, but also change the demand itself, i.e. achieve harmonization of the various parameters, including time parameters of supply and demand by stimulating product demand. It is possible to extend the life cycle of a product by reducing its design material consumption. However, in this case it is necessary to find a compromise between weight reduction and possible appreciation of the product due to the use of more expensive materials, components. Efficiency in operation depends on the product design. Reduction of fuel capacity, energy consumption of product is very important to the buyers. This will not only stimulate the growth of demand quantity for the product at favorable prices, but also will significantly extend duration of the stages of acceleration and stabilization of demand for the product. Thus, the firm will be able to maneuver the product price. Engineering developments should also increase manufacturability of design, but also reduce its labor intensity and technological materials consumption. Focusing on the duration of life cycle stages of demand, the firm should approximate physical and moral product life. Design, performing unnecessary functions and having odd operational life, will just worsen the quality of the product and increase its cost. Thus, qualitative characteristics of the product also depend on the design, including the effectiveness of its target function. Design improvements that increase efficiency, other qualitative characteristics of the product also can change the demand and extend the life cycle of the product in the market and increase its use value, and therefore increase prices and sales volumes. Therefore, the role of development stage is important not only in the development of a novelty. In the process of already existing product release it is necessary to seek constantly for reserves to improve its design. And development stage will have its tasks at each stage of the product life cycle. If at stages of introduction, growth, maturity of product the most common tasks of development are to increase effectiveness, operational efficiency and other qualitative parameters of the product, in the subsequent stages – it is reduction of its price due to cheaper design.

TPP stage influences on technological material consumption of product, its qualitative characteristics and cost. With advanced technology the firm receives more opportunities for price maneuvers and for release of products, which are more diverse in quality and assortment. Therefore, the technology can not only change the product for the requirements of demand, but also influence on the parameters of the demand. It is very important in case of unmatched time cyclicity of demand and products manufacture, as it will allow to achieve their balance by changing individual parameters and time duration of the products demand and supply stages. For the same purpose it is very important to seek for reserves of increasing capital productivity and labor capacity at TPP stage, which will allow to increase or reduce the rate of production in accordance with the demand requirements. It should be understood that the firm’s capabilities on maneuvering product strategies and differentiation of product supply, on increasing the volumes of production, reduction of products costs, increasing labor capacity and increasing speed and tempo characteristics of production to a great extent depend on the characteristics of the technologies used. To balance supply and demand it is very important to calculate the time of technical update of production, to forecast level of labor capacity and capital productivity in the result of introducing new technologies, machinery and equipment, and to compare them with the projected quantity of demand for the product. Too high labor capacity and capital productivity can lead to overproduction, and underutilization of production capacity is similarly unprofitable for the firm. For example, the growth stage of product supply requires a significant increase in its release, and the stage of demand slowdown – slowdown of supply quantity. Therefore, at TPP stage it is necessary to make forecasts of optimum utilization of productive capacity and employment of labor forces in accordance with the tasks, which are set at each stage of the product life cycle.

Smooth production flow depends on OPP stage, which is very important in order to achieve time and tempo compliance between demand and supply. Possibilities to synchronize life cycles of demand and supply of product, as well as possibilities to maneuver in case of their unmatched life cycles depend on timeliness of provision of production with all the necessary resources, reliability, concurrence of work of all enterprise units. It should be noted that any production downtime leads to an unjustified increase in production costs, to price and quantity disproportions between supply and demand, to a delay in exposing product in the market. At OPP stage, it is important to calculate and provide for support of production volumes at the appropriate level within the desired time. Forecast of tempo trends of the production development, resource development, as well as scheduling of development and phase-out of products is required. However, it is important not only to make plans of the product release, but also plans of its possible modernization. In order to calculate all the required measures and their scope, it is necessary to forecast not only the influence of the dynamics of demand on change in product strategies of the firm, but also in resource strategies and possibilities of the firm. Therefore, the firm should at the same time seek for reserves to reduce production costs capacity. This will allow it to pursue a more efficient price policy in the market. Furthermore, presence of resource-saving programs will allow the firm to find resources to increase production volumes more easily in case of any need for this.

Production – work efficiency of this stage is largely determined by the efficiency of the previous stages. However, indicators of productive capacity utilization, capital productivity, volume of output, labor capacity are definitively determined at this stage of product manufacturing. The volumes of production depend on the rate of labor capacity. Class and price of product, and hence the product demand depends on quality of production. Possibilities of the firm on achievement of the time compliance with the demand depend on the speed and rate of production. Thereby the stages of manufacture of product have a key role in achieving the balance between supply and demand. However, one can’t underestimate the role of product sale stage. Planning of marketing activities: service, promotional activities, adequately changing on the stages of the life cycle of demand and according to the situation in the market – an important factor of the firm success.

Thus, the recommended methodology of the study of supply and demand balance, taking into account the time factor, involves the implementation of a set of research, design and engineering, production and technical, organizational and marketing activities that will allow to forecast optimal duration of the product life cycles both as a whole, and on stages of implementation. As a result, it will be possible to synchronize stages of product positioning in the market with demand stages on time of implementation and on the main indicators. If time discrepancies between supply and demand in the market have already appeared, there is the task of not only adjusting quantity, qualitative and price parameters of product supply, but also duration of the stages of its life cycle in the market.

These adjustments should not only approximate parameters of product supply to the dynamics of demand, but also stimulate changes of the demand towards extending its life cycle and increase of the quantity of demand for the product. This methodology of research and time forecasts is particularly relevant in the context of rapid changes in the markets. In the future, it should become an integral part of plans on improvement of the competitiveness of product supply.

quantity of product supply

quantity of product demand

function of product supply quantity

function of product demand quantity

t

duration of life cycle stages

function of supply quantity for “C” product

function of demand quantity for product of one kind conditionally designated as “A”

function of supply quantity for “B” product

product supply price

product demand price

 

function of supply price of “C” product

function of demand price for product of one kind conditionally designated as “A”

function of supply price of “B” product



References:
1. Merkulova Yu.V. Situation and strategic planning in the economy.1Tom.─ Economy.2013.439p.

2. Merkulova Yu.V. Situation and strategic planning in the economy.2 Tom.─ Economy.2013.411p.



Bibliographic reference

Merkulova Yu.V. PLANNING THE TIMING PARAMETERS OF DEMAND AND SUPPLY OF GOODS . International Journal Of Applied And Fundamental Research. – 2014. – № 2 –
URL: www.science-sd.com/457-24476 (16.12.2019).