Describe the approaches a manager can use to reduce demand uncertainty.

An increase in forecast accuracy decreases both the overstocked and understocked quantity and increases a firm's profits.

Quick response is the set of actions a supply chain takes that lead to a reduction in the replenishment lead time. Supply chain managers are able to increase their forecast accuracy as lead times decrease, which allows them to better match supply with demand and increase supply chain profitability. If quick response allows multiple orders in the season, profits increase and the overstock quantity decreases.

Postponement allows a firm to increase profits and better match supply and demand if the firm produces a large variety of products whose demand is not positively correlated and is of about the same size. There is a cost associated with postponement because the production cost using postponement is typically higher than the production cost without it.

In tailored sourcing, firms use a combination of two supply sources, one focusing on cost but unable to handle uncertainty well, and the other focusing on flexibility to handle uncertainty, but at a higher cost. For tailored sourcing to be effective, having supply sources where one serves as the backup to the other is not sufficient.