Sales growth does not always mean profit growth. Why supply chains must be designed for volatility.

Fluctuating demand, frequent promotions and a growing number of product variants mean that logistics must operate not only efficiently, but also with agility. Meanwhile, processes designed for stable conditions can generate extra costs whenever reality deviates from the plan. How do you set up your supply chain for these shifts without incurring unnecessary operational costs?

For years, logistics efficiency has been assessed based on unit costs, warehouse space utilisation, and operational performance. While these metrics still hold importance, they do not tell the whole story. They fail to account for the total costs that arise when businesses deal with sudden changes in demand, schedules, or order structures.

The expert delves further into the impact of volatility on profitability, and analyses the tipping points where a legacy operating model no longer aligns with business needs in the e-book “When Growth Ceases to Be Profitable: The Hidden Cost of Volatility and When to Change Your Operating Model.”

Volatility is becoming part of day-to-day planning

Manufacturers must adjust production volumes and mix to match demand, while retail chains expect on-time deliveries, efficient stock replenishment, and flexible handling of promotional campaigns. Shorter production runs, new product variants, and promotional sets mean more frequent changes to schedules, order picking, and warehouse organisation. Disruptions in international trade and raw material availability add an extra layer of challenge, potentially forcing changes in procurement and delivery arrangements.

The answer should not be to maintain sufficient stock to cover every worst-case scenario. Such an approach would be expensive. Instead, the key is identifying which supply chain components are most vulnerable to disruption and understanding how those disruptions affect the entire process.

The real problem arises when every deviation demands a quick fix, be it expedited freight, overtime, staff reallocations, or schedule changes. A single emergency measure may be justified, but when fire-fighting becomes a daily practice, it severely drags down profitability and renders planning ineffective.

The cost of a single operation is not the whole story

Logistics optimisation efforts often focus on warehousing costs, freight rates, space utilisation, or picking efficiency. However, decisions made in one area affect the others. Reducing stock levels may lower storage costs, but increase the frequency of replenishment runs. Maintaining higher stock levels improves product availability, yet it drives up inventory holding costs.

Similar dependency patterns can be seen with changes in packaging, multipacks, and customised product bundles for specific retail chains. Sales promotion initiatives require proper preparation across warehousing, transport, and other operations. When information about planned changes arrives too late, the risk of operational reshuffling, delays, and unbudgeted expenses skyrockets.

This is why efficiency must be assessed across the end-to-end supply chain, taking into account not just costs, but also order lead time, product availability, and customer service levels. Cross-functional alignment between sales, production, and logistics is key, particularly when planning promotional campaigns and seasonal peaks.

“Agility is not about maintaining peak capacity at all times. It’s about understanding where volatility has the greatest impact on performance and preparing the process accordingly. This makes it possible to minimise contingency measures without incurring the costs of keeping the entire operation on standby for the worst-case scenario,” emphasises Michał Wawrzyńczak.

How to design a responsive supply chain?

One of the key areas is stock allocation. Decisions should take into account not only storage costs, but also inventory turnover, demand volatility, and expected lead times. Placing some fast-moving goods closer to the fulfilment centre can speed up deliveries without increasing stock levels across the entire chain.

Seasonal planning, aligning promotions in advance, and the flexible organisation of additional operations are equally important. One viable solution is co-packing, which includes creating promotional sets, repackaging, and customising products to buyer requirements. However, its feasibility depends on product characteristics, operational scale, and overall costs.

Operational data analysis also supports decision-making. Insights into product turnover, warehouse workload, lead times, and recurring delays help identify bottlenecks and determine whether an issue stems from resource shortages, inventory positioning, or work organisation.

Resilience with no excessive costs

Designing a supply chain around volatility does not mean preparing every single process for every possible scenario. It requires identifying risks, understanding the interdependencies between operations, and tailoring solutions to actual business needs. Key factors include regular data analysis, cross-functional collaboration, and evaluating the entire end-to-end process rather than isolated metrics alone.

In practice, execution speed is just as important – how quickly these principles can be translated into day-to-day operations. Partnering with a logistics service provider can streamline the alignment of resources and processes with fluctuating demand, seasonality, and customer requirements, thereby reducing the need to maintain maximum internal capacity year-round.

Today, competitive advantage does not stem from maximizing the performance of each individual link in the chain. Instead, it comes from sustaining on-time delivery and high service levels as market conditions shift. It is precisely this ability to adapt without losing control of operational costs that allows for better resource utilisation and ensures that sales growth genuinely supports business performance.