Today’s macro environment remains uncertain with high unemployment, significant debt and volatile markets. In addition, consumer expectations are changing more quickly than ever and product lifecycles continue to shorten. Companies can be proactive and battle the uncertainty by managing the volatility through a demand-driven supply chain to get a leg up on the competition. The demand-driven supply chain focuses on the market and consumer for planning, processing and production. It augments the traditional forecasting process by creating a sense and respond environment to enable a company to quickly adjust ordering, production and shipping in order to match the increased or decreased demand.
The size of your demand-driven supply chain can vary from a coordinated effort between your company, your suppliers and even your customers to an internal approach where coordination within your firm is the extent. There are tangible and intangible benefits of operating a demand-driven supply chain such as greater market share and increased revenue by maintaining relevance with your customers through improved product development; cost avoidance; and free cash flow by reducing inventory and managing shortages or obsolesce. Intangible benefits include engaged employees and suppliers working together, rather than creating barriers from misaligned objectives.
Regardless of how you approach the demand-driven supply chain, there are four vital characteristics that executives must demonstrate and implement to successfully incorporate the processes into the organization: coordination, communication, capacity and commitment.
Coordination: Get everyone on the same playbook
Signals for demand changes can originate in a number of places and can have significant impact on the entire value chain. Implementing a demand-driven supply chain requires a coordinated effort across all parties to react accordingly and make adjustments promptly. Because many companies delivering a product or service utilize a partner for delivery efforts, a coordinated approach with suppliers allows them to react simultaneously in order to take advantage of evolving conditions and prevent costly errors.
Developing partnerships and establishing a coordinated team approach encourages customers and suppliers to proactively share information and work together to quickly respond to environmental shifts. In addition, the collaboration encourages suppliers to offer innovative solutions to help manage the unpredictability in order to share the risks and benefits. Supplier engagement and performance management programs should be established to include focused communication channels and measures within the demand-driven supply chain.
Within the organization, it’s just as important for cross-functional collaboration and information sharing to ensure the leaders within each function are prioritizing their resources to respond to the market shifts. Sales and Operations Planning (S&OP) meetings and tools allow the operations to respond and provide insight into supply and production impacts. Coordination does not just happen. It requires preparation and organization to establish the key contacts and business process owners that understand their roles in the overall demand-driven supply chain.
Communication: Formal meetings, communications channels and water cooler conversations
The demand-driven supply chain requires responsiveness and agility. Communication channels must be established to ensure demand signals and their counter responses are threaded through the business process owners and suppliers. In today’s global economy and digital age, companies can mobilize very quickly to demand changes. Business analysts can distribute key findings to executives quickly, along with Web and mobile applications to large number of stakeholders quickly. However, there is also a balance with established weekly, monthly and quarterly S&OP forums. These forums ensure the right business owners are involved; the desired information is presented with the right context; and allow the proper evaluation and collaboration across all parties. There must be a good mix of formal communication processes and protocols for responding to demand and supply shifts, along with ad-hoc communications and escalations when certain thresholds are met. The information must flow across the organization—down through the ranks to ensure alignment of activities and tasks with shifts in the priority objectives.