Managing Demand Fluctuations: Distribution Strategies as Risk Mitigation Tools An analysis of a case company’s current risk mitigation strategies and two logistics postponement strategies

Abstract

Currently, the retail sector is experiencing fluctuating markets with high demand volatility and demand uncertainty. Therefore, companies within this sector need to implement distribution strategies which are tailored to dealing with mitigating the risks of demand volatility and uncertainty without incurring too much costs, which may negatively affect operations or compromise customer service levels. In order to conduct this thesis and answer our research questions, we utilized a qualitative research method which included interviews and a literature review. The thesis entails an analysis of a case company’s current risk mitigation strategies and two logistics postponement strategies tailored to the case company. Their current risk mitigation strategies include an omni channel and balancing inventory through lateral shipments. The analysis was based on benefits and limitations related to dealing with demand volatility and uncertainty. Furthermore, complementary operational, based on a scenario planning analysis, and strategic considerations of the two logistics postponement strategies are discussed. In conclusion, the masterhouse strategy shows great robustness in dealing with demand volatility and uncertainty with centralizing safety stock closely lagging behind. However, further investigation of the centralizing safety stock strategy is recommended due to the associated lower implementation costs and scale. Additionally, expanding omni channel integration in conjunction with the centralizing safety stock will allow for enhanced operational efficiency and increased customer service. However, if the case company decides to remain their decentralized set up, further integration and optimization of the omni channel and balancing inventories need to take place. Both their current strategies respectively deal with demand uncertainty and volatility in various ways, however, there are relevant limitations such as navigating compliances and regulations and lacking technical capabilities.