What does demand risk refer to?

Demand risk specifically pertains to the possibility that the actual customer demand for a product or service may be lower than what has been anticipated or forecasted. This uncertainty can arise from various factors, such as changes in consumer preferences, economic conditions, or the emergence of alternative products. Understanding demand risk is crucial for businesses because falling short of expected demand can lead to overproduction, excess inventory, and increased holding costs, ultimately impacting profitability and operational efficiency.

In contrast, the other options concern different aspects of risk in the supply chain or market dynamics. Supplier capability addresses the reliability and capacity of suppliers to meet demand, fluctuating supply prices relate to cost changes in obtaining materials or products, and competitive pricing focuses on how market competition affects consumer purchasing decisions. Each of these concepts plays a role in overall supply chain management but does not specifically define demand risk as it is understood in this context.