10 Nov Italian pasta maker, Barilla, offered discounts to
Italian pasta maker, Barilla, offered discounts to customers who ordered full truckloads. This created such erratic demand patterns, however, that supply costs overwhelmed the revenue benefits. In each of these brief examples, the company was successfully able to influence customer demand with price discounts and effective marketing, demonstrating that demand is not a completely independent factor. In addition, in each case an increase in sales did not result in increased revenues because they were overwhelmed by increased supply chain costs. This presents a complex problem in supply chain management. Effective marketing is generally a good thing because it does increase sales; however, it also makes forecasting demand more difficult because it creates erratic demand patterns tied to price changes. So what should companies do? Should they forego price discounts and promotions to render demand more stable in order to create a more consistent supply chain that can be effectively managed? One company we mentioned in this chapter has, in effect, done this. Identify this company and explain how it manages its supply chain. Also, discuss the complexities associated with managing a supply chain in which price changes from promotions and discounts are used and discuss strategies for overcoming these complexities.
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