Global Enabled Supply Chain Series: Demand Management

[From iSource Business, December 2002/January 2003] As organizations continue to take competitive control over consumer and business demand, successful companies will run their businesses according to a demand driven philosophy. In fact, they'd rather you referred to their business management strategy in this area as a demand chain, not a supply chain.

Organizations have nearly done all they can to maximize cost cutting efforts, and now the rallying cry in business is "build revenues." This newfound competitive nature that typifies the "demand-driven" company is indicative of the fact that they've changed the way they plan, forecast, expend capital, market and service customers, and manage their inventory.

In fact, Kent Allen, research director for analyst firm Aberdeen's sell-side and demand chain management practice, says simply, "The demand chain is really looking at the completed product, preparing and transacting the sell of it in the most efficient manner to make a profit." Key to this is the widespread use of Internet technologies combined with the challenging sales environment, stemming from the lingering global recession, he suggests.

"Traditional supply chain automation focuses on the coordination of materials," adds Kosin Huang, senior analyst for the Yankee Group, in her recent report "The Strategic Opportunity for Demand Chain Management: Key Processes Defined." "What's needed at the end of the value chain is an integrated set of demand chain solutions that manage the flow of finished goods for trading partners from manufacturers to wholesalers, distributors and retailers to end consumers. They have a need to tackle business processes such as pricing and promotions optimization, configuration, order capture, demand planning and replenishment, and order fulfillment. These processes roll up into four major categories: demand stimulation, demand capture, demand interpretation and demand fulfillment."

Jennifer Chew, research analyst for Forrester, describes a need to radically revamp how demand management software is even structured. "Today corporations follow the fallacy of completely re-planning every time there is a change in the demand or supply chain when, in fact, what they need to be able to do is to respond in small ways to small changes. They can't do that in the current environment."

In what Forrester labels Adaptive Supply Networks, Chew explains that the types of software programs that companies rely on, like vendor-managed inventory (VMI), are still not being driven by end-consumer consumption. "The current programs are based on consumption in the middle of the demand chain, such as the distribution centers, as opposed to actual point-of-sale data at, for example, Wal-Mart."

So, what's it going to take to get us to a demand chain model driven by true B2B or end-consumer demand? While the road to demand management nirvana may be paved with potholes, at least there is a road and there's even a map included for directions.

The Journey Begins

Since it's more time consuming today to build forecast consensus around true customer demand, the challenge to build it right is greater than the business world realizes.

Forrester's Chew uses the checkout aisle at the grocery story to bring home the point. In basic terms, if you watch the checkout clerk at the grocery store scan six cans of cat food, odds are you'll see her scan one can six times, rather than pick up each can individually, look for the bar code and then scan it. As the customer, you might have purchased two chicken cans, two fish cans and two beef cans. However, if the store records what was purchased according to the one can that was scanned, it will show its inventory is down by six cans of fish-flavored cat food.

"So even though you might have point-of-sale data being fed back into a demand management application it's very likely the system contains inaccurate data," says Chew.