According to the article, zero rates of Good and services tax (GST) had been announced and will start to be effective on 1st June 2018 in Malaysia. One of the industries that Sime Darby Bhd serves is Sime Darby Motors had import and distribute the vehicles. This announcement had caused the price of the new car had decreased by 6% approximately until the reintroduction of Sales and Services Tax (SST). Moreover, before the zero-rated of GST is effective, there was decreasing on the sales of the car in May 2018 because the customer would like to wait until June 2018 which the 0% GST effective. The sales might slow down in the month before the 0% GST is effective which can give impact on the automotive industry.
However, in the middle of the month of zero rates of GST is effective, the sales of the automotive industry probable boosted since car prices have dropped which may help to make up for the losses in previous month. Since the SST may be introduced back on September 2018, the sales of the car may be increased in June, July and August which expected by the research team.
When there is the difference between forecasting and actual demand which has brought out the potential loss is considered as demand risk. Demand risk is usually found in sales, decision in supply chain and etc. which need to depend on the forecasting demand. If forecasting demand is not accurate such as mispredicting of the quantity of the product that customers’ ability and want to purchase, it will give impact on the losses in company performance. So, the demand risk on business has occurred if the company produce too less or too much product to meet the demand.
According to the article, Sime Darby Bhd may be faced demand risks. First of all, Sime Darby Bhd is facing a risk if the demand is over-estimate, they might import and distribute the vehicles quantity exceeded the amount that capable to sell. It may happen when the 0% GST is effective in June 2018, the customers are willing to purchase the vehicles so the demand might increase because of not only the price of the car is reduced , the insurance premiums is also reduced due to the cancellation 6% of GST. If the demand is over-estimate, the surplus of the inventory will cause the company in short of the warehouse space and resources. Sime Darby Bhd might need to reduce more the price to sell out the vehicles in the end which will cause reducing in profit.
In contrast, there is demand risk occurring when the company under-estimated the demand which the company had import and distribute the number of vehicles that less than the amount that able to sell. This may happen when the month before the GST 0% is effective and also after the SST is reintroduced. The demand is lower since the customer would like to wait until the 0% GST is effective in June 2018 or the 10% of SST will be introduced back which may cause the price of the car to be higher. So, it may lead to the shortage. Although it’s looking less critical than the surplus of inventory but the loss of opportunity such as losing the customers.
In order to mitigate the demand risk, Sime Darby Bhd had controlled the potential concerns about regulatory by more often and regularly participating in communication with the respective regulators and governments so that the company able to follow up the latest changes on regulation and economy. This is because the alterations in government policies and regulations that currently exist such as the cancellation of GST and reintroduced SST in Malaysia will also affect the consumer demand. The customers’ wages, level of employment and consumers’ confidence in consuming goods will be affected by the economy changes. So, the method approached by the company is to estimate demand more accurately so that the demand risk can be reduced.
The first recommendation for Sime Darby Bhd can attempt in order to reduce the demand risk is the company needs to perform the customer collaboration so that the company is aware of the requirements that the customer wanted. Sime Darby Bhd can do it by enhance the customer services to be more responsive which can provide help in better data collection from the customers. The data that collected from the customers need to be more detailed, quality and accurate so that Sime Darby Bhd is able to respond immediately to the changes in the demand which can minimize the impact of forecast error. Therefore, Sime Darby Bhd can able to perform the most accurate demand prediction so that they can meet the demand no matter peaks or troughs.
Furthermore, in order to reduce the demand risk, the company also can choose the latest and most appropriate software for forecasting demand that can incur more effective analyzation of the data and review the historical demand trends. Therefore, an accurate demand forecasting is able to expected the customers’ demand in future so that the company can prepare the sufficient stock. The tools that chosen by the company must be able to recognize the sales cycle and the seasonality of the product more accurately so that can avoid particular circumstance such as the surplus of the inventory during the lower demand periods and shortage during peak selling seasons. Besides, carry on the forecasting every week and complementing it together with the dashboard reporting so that the healthie’s of the pipeline can be ensured.