Factors Influencing Supply

A Demand and Supply Graph

Demand and Supply Graph

Factors Influencing Supply

This article serves to supplement the article Influences for Supply and Demand, that I wrote a while ago. For a more general overview of supply and demand, I suggest visiting there first.

Supply has many factors that influence a market, such as;-

  • The availability of raw materials.
  • The time it takes to process a set, batch or quantity of stock, like aged wine or hard sweets.
  • Disruptions to the distribution chain of competitors, such that their prices or other aspects change.
  • Natural Disasters utility supply issues or storage issues.
  • Advertising could increase consumer interest or make the product more noticeable to customers or potential customers and cause a shortage due to unforeseen interest or popularity.
  • Branding or PR could be used more prominently or advertised to cause similar consequence.
  • New Machinery or Technology could make the production of items much less time consuming or much cheaper such as new methods of batch processing.
  • A monopoly may artificially limit the availability or raise the price or perform anti-competitively.
  • Automation could speed up production and therefore increase availability.
  • Government Subsidy or Tariffs could increase or decrease supply in a domestic market.
    • A subsidy devised to increase sales in a companies domestic market could raise consumer interest.
    • A company may be forced to maintain a domestic market orientation as shipping externally may not be competitive due to tariffs.

The overall effectiveness of a product is readily available to be supplied by manufacturers depends on consumer interest, the availability of raw materials and the lead time it takes to produce a product.

Agricultural products may be much harder to maintain during droughts or other natural disasters as they take the time to grow naturally and no amount of investment can speed up the process much more than what people are willing to pay for.

Stock Control and Resource Management

Just In Time is a lean production technique, It involves ordering a product right as it is about to run out, but before the business has to stop manufacture, this allows a business to work effectively when creating a product that requires a lot of parts and accessories.

types of stock control and resource management arrows
Raw MaterialsWork in ProgressFinished Goods
Bought from suppliers   Supplier may not be able to meet demand   Supplier could not raise prices   Used in assembly or as ingredients   Parts for assembly Not Sellable   Costs business money to make into product   May be a slow process   Wine   May cost staff hours if long time delays i.e. building houses Needs moving for social events   Christmas Gifts

This table shows the disadvantages of holding stock at different levels of the stock control process.

Why hold stock?

  • Fundamentally holding stock allows production to take place
  • To satisfy customer demand
  • As a precaution against delays from suppliers
  • It allows efficient production
  • It allows for seasonal changes
  • It provides buffer between production process

Main influences on Stock

  • The need to satisfy demand such as demand influxes or lower commodity prices.
    The a need to manage working capital, stock control for example could mean a product is depleted without being replaced.
    Risk of losing value, such as the stock market price. Food and vegetables such as flowers may also decrease in value over time.

Low stock levels

  • Lower stock holding posts.
  • Lower risk of obsolescence.
  • Less capital tied up in stock. So the business is more liquid.
  • Consistent with operating on lean production.

High stock levels

  • Production is always fully supplied so there are never any delays as the product never runs out.
  • Potential for lower costs by ordering in larger quantities.
  • The business is better able to handle unexpected changes in demand or the need for higher output as they will have the stocks available.