Preparing for the Reemergence of Demand

Many economic indicators point to new growth in consumer demand in the coming months. But when will it happen? And is your supply chain equipped to handle it?


The new proactive paradigm of "planning for discovery" takes PDCA to the next level. Not only should companies monitor performance against actual demand, they should also answer more complicated questions: "Were our assumptions correct? Did we anticipate and manage risks effectively? Did we apply the right levers to correct our course?" This is a much more sophisticated process than simply measuring forecast accuracy.

In addition to anticipating disruptions, the new paradigm of PDCA requires learning opportunities be built into plans. Rather than simply making corrections, true supply chain leaders use disruptions as chances to drive ongoing learning through systematic postmortems of results. As they do so, they are improving future assumptions, risk management strategies, process playbooks and other plan components as part of a closed-loop, ongoing process of discovery.

While the typical organization may require a dramatic mindset shift to make these changes, new technology solutions are emerging to support this process, from early warning systems to process playbooks that gather inputs from across the end-to-end supply chain and respond with corrective actions. These tools are growing in sophistication, reflecting the emerging needs of a volatile business world. Some supply chain events trigger an automated response that redefines the policies that govern the entire value chain, while other events may be escalated for further investigation by executives. Often, these investigations — triggered by performance exceptions — can reveal subtle, but significant, demand shifts in the marketplace.

One company that uses i2 solutions to monitor buying behavior offers a good case in point. Although its portfolio consists of thousands of individual products, i2 helps the organization discover changes in buying patterns for specific SKUs. Occasionally, these "micro" changes can signal "macro" marketplace trends. For example, i2 solutions uncovered a change in demand for just seven parts, which triggered an in-depth root-cause analysis. This investigation suggested that a broad shift in demand was imminent, and the entire value chain was able to prepare in advance. This kind of organizational insight and learning is preparing many businesses to not just survive but thrive in today's unpredictable environment.

Focus the Entire Value Chain on the Single Moment of Truth

In addition to changing their fundamental approach to planning, supply chain leaders are making a second shift. They are realizing that the entire value chain must work together to support a single moment of truth: the moment when a shopper enters a retail aisle, finds a product and makes a decision to purchase it. Understanding consumer behavior has traditionally been viewed as a sales and marketing responsibility of the brand manufacturer, but the economic downturn clearly demonstrated that the entire value chain is impacted by changing end-user preferences and actions. Every stakeholder in the value chain, from suppliers to channel partners, must focus on the buying decision — the pivotal moment that represents ultimate success or failure.

How can companies better prepare themselves to win at this all-important moment? A number of core competencies within the business must be aligned to create a value chain that is truly "shelf-aware," including:

Focus on consumer demand. In the traditional demand-driven paradigm, all participants waited for demand signals from their own immediate customers. Today, all players in the value chain need to develop their own firsthand understanding of broader consumer behaviors and preferences. Forward-looking organizations are using a variety of sophisticated means — including real-time, in-aisle data sent via mobile devices and "street intelligence" about competitor promotions — to sharpen their focus on end-user demand.

Intelligent use of channel data. Value chain partners enjoy greater access to channel data information than ever before, but most struggle to make sense of it. By applying proper analytics, channel data can be translated into valuable information. For example, a misalignment between sell-in and sell-through trends can signal to upstream partners broad market changes.

High in-stock availability. Even the most appealing product will not win the sale unless it is actually on the retail shelf when shoppers enter the aisle. High in-stock availability — at a relatively low risk — can be achieved via inventory right-sizing strategies and pull-based replenishment schemes that take an integrated view of the value chain. Channel managers must work to build retailer trust by demonstrating both forecast reliability and stocking flexibility so retail partners are confident that products will be on the shelf without excess inventory on hand.

A truly shelf-aware and consumer-focused value chain enables all participants to have the agility necessary to shift their supply chain strategies — including their inventory and replenishment policies — to reflect what is actually happening in the retail aisle and at the cash register today. This mindset shift places new demands on most businesses. The good news is that innovative processes and technology solutions are making it easier to focus on consumers and align the end-to-end value chain against the ultimate "moment of truth" — ensuring that the end result is in high availability and an attractive selling proposition.

Looking Ahead: Assume a More Proactive Stance

While many businesses have suffered setbacks in the last 18-24 months, the economic downturn has provided an opportunity for every organization to reexamine its fundamental supply chain principles. The greatest lesson we can collectively learn is to take a more proactive posture as we look toward the future — not waiting for the next dramatic change, but anticipating it and ensuring that we are poised for immediate action. Every business can proactively create a closed-loop learning organization that makes agile supply chain adjustments in response to market changes, and that can capture knowledge to improve future assumptions and results. In addition, value chains can incorporate a consumer focus that senses upturns and downturns before they happen to avoid being unprepared. These changes will separate the leaders from the followers as we continue to navigate this uncertain consumer marketplace. ¦

About the Author: Adeel Najmi is vice president for product strategy and planning at i2. More information on i2 at www.i2.com.

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