As we have previously noted, the purpose of the supply chain is to balance supply and demand. Traditionally, this has been achieved through forecasting ahead of demand and creating inventory against that forecast. Alternatively, additional capacity might be maintained to cope with the situation if demand turned out to be greater than forecast. In this context ‘capacity’ refers to the ability to access supply not currently held as inventory. Either way, demand is balanced with supply. Figure 5.7(a) below illustrates a balance with the box marked ‘D’ representing demand and the boxes ‘I’ and ‘C’ representing inventory and capacity respectively.
Figure 5.7(a)
In other words there must be enough capacity and/or inventory ...
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