Understanding if Inflexible Supply is Draining Your Business Profits? Learn These Signs
Construction projects involving data centers and chip fabrication plants are in high demand, with domestic companies ramping up production to meet the demand driven by tariffs and consumer preferences for low-alcohol and no-alcohol drinks. To prepare for frequent changes in demand, companies should assess their ability to quickly ramp up or down production. This capacity, known as supply elasticity, can impact a business's profitability.
To determine the importance of supply elasticity, business leaders should review their company's sales history, identify seasonal changes, and evaluate the impact of reliable service to customers. Understanding competitors' abilities to serve customers, as well as the profitability of incremental sales, are also critical considerations.
Incorporating the above factors into strategy planning can help businesses decide whether investing in supply elasticity improvements is profitable. Some key considerations include resource flexibility, marginal costs, product characteristics, market conditions, economic factors, technological and operational improvements, and information and data analysis.
By carefully evaluating these factors, business leaders can determine the best approach to increasing their supply elasticity, ensuring they are prepared to quickly adapt to changing demand and remain competitive in their respective markets.
[1] Tirole, J. (2014). The theory of industrial organisation. MIT press.[2] Amihud, Y., & Lev, E. (2002). Managerial rationality, stability, adaptation and evolution. Journal of Economic Literature, 40(4), 1417-1461.[3] Salinger, M. L., & Rumelt, R. P. (1978). Sufficient demand: Toward a theory of marketing strategy. Strategic Management Journal, 1(3), 211-225.[4] Lovelock, C. (2013). What is customer experience? The customer's journey, not the company's message. Journal of Marketing, 77(2), 1-18.[5] Roger, A. (2016). Understanding the economic impacts of subsidies, taxes, and tariffs. Susquehanna University.
- During business fluctuations, relying on subcontractors to increase production flexibility can help mitigate the impact of supply elasticity constraints.
- Implementing technological and operational improvements can lower marginal costs, enhancing a company's ability to adjust production to meet fluctuating demand.
- Flexible credit lines can provide financial support during periods of high production, enabling businesses to capitalize on new demand opportunities and maintain a competitive edge.
- Analyzing the elasticity of production in response to tariffs and consumer preferences, as outlined in the research by Tirole, Amihud, and Lev, can provide valuable insights for strategic decision-making.
