Sadly, there hasn' been much time to participate in this community recently, but gladly the reason has been my two-month old baby daughter, who every day teaches me the value of supply and demand.
The problem with babies is that they are unable to communicate and voice their demand clearly, and it's impossible for me or my spouse to know which supply that is required to satisfy the demand, that as already mentioned, isn't even clearly articulated. Currently, any discomfort or crying could mean anything. So here we go...Milk? No. Holding? No. Holding while walking? No. Diaper change? No. Stomach pain? No. Eventually, and not necessarily in that order, demand is met and the baby is soothed, at least for the next half hour or so. Luckily, in real life, matching supply with demand is somewhat easier.
Regardless of my current time contraints, and in total disregard of a two-month backlog of unsatisfied sleep demand, I just finished reviewing Designing and managing the Supply Chain by David Simchi-Levi, Philip Kamisky and Edith Simchi-Levi. Despite being 4 years old and in its third edition, with a fourth coming soon, this 500+ page volume seems to contain everything I ever needed to know and perhaps more than I ever wanted to know about how-to everything in supply chains.
One chapter in the book is devoted to the so-called bullwhip effect, a term made popular, among others, by Hau Lee et al. in their 1997 article in the MIT Sloan Management Review, citing the discovery that Procter & Gamble made when analyzing how diaper demand reverberated up the supply chain from the store to their manufacturing units and suppliers.
Not long ago, logistics executives at Procter & Gamble (P&G) examined the order patterns for one of their best-selling products, Pampers. Its sales at retail stores were fluctuating, but the variabilities were certainly not excessive. However, as they examined the distributors’ orders, the executives were surprised by the degree of variability. When they looked at P&G’s orders of materials to their suppliers, such as 3M, they discovered that the swings were even greater. At first glance, the variabilities did not make sense. While the consumers, in this case, the babies, consumed diapers at a steady rate, the demand order variabilities in the supply chain were amplified as they moved up the supply chain. P&G called this phenomenon the “bullwhip” effect.
What puzzles me is the statement that "babies consume diapers at a steady rate". True as that may be, why then is there no standard size for the different diaper size packages? Size #1 has 35 pieces, size #2 has 39 pieces, a jumbo 2-in-1 #2 may have 44 in each package, size #3 has 32 and so on. If I switch brands get another range of package sizes. So even though the consumption may be steady, my inventory level cannot be filled at a steady rate, meaning that as the baby grows older I have to buy diapers at a changing rate, simply because the package sizes vary. Perhaps I should invest in some inventory software?
Adding to the confusion, different stores will have different prices, and different loyalty programs and sales campaigns, buy one get one, or buy three get one, and so on, and since I, the price-conscious parent, like to have a unit price for comparison, I find myself spending to much time in front of the diaper shelves comparing and deciding which brand/package that offers most value for money. Luckily there are only two diaper brands in Norway, Libero and Pampers, besides the no-name generic brands, but still, it takes time. Perhaps I should hire a procurement specialist?
Perhaps it is a result of some sort of "smart pricing" scheme, a topic that is also covered by the above book. Purposely confusing the consumers so they don't know what to buy and hopefully choose the package with the biggest profit margin?
Anyways, this brings to mind another smart pricing issue: Decreasing size and increasing price. You know, you may have noticed how your favorite chocolate bar sheds a few grams now and then, while the price stays the same, or perhaps even increases? In fact, the actual retail price increase that this weight reduction represents, is often much more than the increase in production cost the factory has had, and why is it that bite-size chocolate costs far more per gram than the giant jumbo plates? It can't cost that much more to manufacture the small bags...but that's another story for another post for another day.