Final answer:
Increases in retail demand typically lead to higher orders from distributors to manufacturers, pushing manufacturers to produce more and potentially raise prices if the supply is tight. Suppliers of raw materials may also raise prices if their supplies are in higher demand. On the distribution level, high retail demand causes a need for more stock while lower demand can result in excess inventory and potential discounts to clear the stock.
Step-by-step explanation:
How retail demand affects the level variation at distributors, manufacturers, and suppliers can be understood by looking at the basic principles of supply and demand. When retail demand increases, manufacturers will typically see this reflected as an increase in orders from distributors, prompting them to produce more. If the cost of production remains steady, the manufacturer may keep prices the same, but if the demand is significantly higher than the supply, prices may rise to reflect the increased scarcity of the product. In contrast, if retail demand decreases, manufacturers may receive fewer orders, leading to potential overstock, and prices may lower to encourage purchases and clear inventory.
Similarly, suppliers of raw materials will experience fluctuations based on the manufacturers’ demand for inputs. If manufacturers ramp up production due to high retail demand, suppliers may raise prices if they perceive their raw materials to be in short supply. This can lead to increased costs for the manufacturer. Conversely, if the demand for raw materials falls due to decreased retail demand, prices from suppliers may decrease as they compete to sell their excess stock.
On the distribution level, demand changes can lead to adjustments in stock levels. High retail demand might cause distributors to order more stock and manage inventory to prevent shortages. When demand falls, distributors may be left holding excess inventory, which they might discount to release capital tied up in unsold goods. Thus, retail demand directly impacts the supply chain, causing changes in production levels, pricing, and inventory throughout.