Demand and Supply Chain Model

Demand and Supply Chain Models

ECO/372

August 21, 2014

Demand and Supply Chain Model

Ever ponder how the item desired by an individual finds its way to a retailer to be purchased, consumed or serviced?  It’s a matter of economics!  Economics rests on a plethora of principles, but one of the foundational principles relative to the market economy is the demand and supply chain model.  The demand component references the quantity of products or services while the supply component determines how much can be provided at a designated price point.  Team C will expound upon the demand and supply chain model of economics.

The supply chain involves all parties either directly or indirectly in fulfilling customer requests.  The supply chain includes manufacturers, suppliers, transportation, warehouses, retailers as well as the customers.  Multiple organizations may be responsible for a particular component which ultimately results in a product that is purchasable by consumers (Colander, 2013).  For example, the manufacturer is responsible for all functions in the supply chain that involve receiving and fulfilling a customer request which includes product development, marketing, operations, distribution, finance, as well as customer service.

Typical supply chain has five components: customers, retailers, wholesalers/distributors, manufacturers, and component/raw material suppliers but each is not required to be a part of the supply chain.  The customer's need and role determines the design of the supply chain (Colander, 2013).

The following is an example of the supply chain.  A customer walks into a retailer to purchase laundry detergent.  The supply chain commences with the customer’s need for detergent.  The next stage in the supply chain is the retail store that the customer visits.  Retailers’ shelves are stocked with inventory that may have been supplied from a finished goods warehouse that the retailer manages or is delivered by truck from a third party distributor.  The manufacturer stocks the distributor after receiving raw materials from a variety of suppliers who in turn may have been supplied by lower tier suppliers.  The dynamic supply chain involves the constant flow of information, product, and funds among the five supply chain components.

Aggregate demand is the portion of the demand and supply chain model that involves the sum quantity of products and services in a competitive market at a specified price within a specified time.  The aggregate demand curve illustrates the association between price levels and the output measure.  There is usually a negative relationship between demand and price.  Aggregate demand is also represented by the formula, AD = C + I + G + (X-M).  “C” represents the consumer’s spending on products and services.  “I” represents investments on capital items by organizations; while “G” equals government spending on products and services provided to the public.  “X” stands for the export of products and services and “M” equals the import of goods and services.