At midyear Volvo found itself with a surplus of green cars in inventory. In order to get rid of this inventory, the sales and marketing group offered discounts and rebates to distributors on green cars. The marketing plan was successful, and the demand for green cars increased. However, supply chain planners, unaware of the marketing plan, perceived that a new customer demand pattern had developed for green cars so they produced more green cars. As a result, Volvo had a huge inventory of green cars at the end of the year. In addition, an increase in sales did not result in increased revenues because Volvo was overwhelmed by increased supply chain costs.

Volvo was successfully able to influence customer demand with price discounts and effective marketing. Effective marketing is generally a good thing because it can increase sales; however, it also makes forecasting demand more difficult because it creates erratic demand patterns tied to price changes. This presents a complex problem in supply chain management.

1.Discuss the complexities associated with managing a supply chain in which price changes from promotions and discounts are used.