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.
Capacity: The right tools and team
Implementing a demand-driven supply chain requires time and resources to do it effectively. Companies must invest in tools and allocate resources to build the capabilities to effectively monitor demand and supply changes. With the amount of data being stored and transferred, it’s crucial to have the IT capacity to make sure the data is safe, accessible and timely. There are many tools—such as ERP, business intelligence (BI)and cloud computing—used today. Unfortunately, many are underutilized or used ineffectively. In many cases, companies invested in the tools but business process owners and business analysts are not trained to maximize the full potential of the tools. To achieve the capacity necessary and unleash the potential of a demand-driven supply chain, there must be alignment across employee roles and responsibilities, processes and technology. The key is a comprehensive set of requirements that form an integrated solution across the functions and suppliers. Business processes must be designed with clear hand-offs and control points that trigger actions and decisions. Once the capacity is in place, companies can leverage the demand-driven supply chain to its full potential.
Commitment: ensure buy-in at the executive level
Since there are a number of stakeholders involved in executing the demand-driven supply chain, it takes strong executive commitment to see it through to implementation. You can’t implement a demand-driven supply chain overnight and leadership must show discipline and patience while the processes mature and are adopted by the key players and suppliers. Those with critical roles will need executive champions to support their needs for resources, tools and the time required for coordination, communication and building the required capacity. It must be built into the overall business system and company culture to drive the desired behaviors. The demand-driven supply chain reaches beyond daily employee activities into strategic planning processes, organization design and employee incentives and rewards. In addition, S&OP meetings and supplier reviews take time. Leaders must be consistent and committed to the process. If the key players frequently miss meetings or fail to execute their responsibilities, the existence of the demand-driven supply chain will fade.
The characteristics of the demand-driven supply chain should sound familiar and are required to run a successful business today. However, in the context of a demand-driven supply chain, the characteristics align behaviors to ensure the organization is customer centric and maintains market relevance. A demand-driven supply chain functions a lot like vertical integration, though with its model, one avoids the substantial upfront investment but still reaps the benefits. In addition, you are positioned to proactively manage supply constraints quickly; effectively manage stakeholder expectations; and increase customer satisfaction.
In times like these, where uncertainty is around every corner, it’s paramount that you take every step at your disposal to continue your success. Operating a demand-driven supply chain can provide the competitive advantage necessary to meet your strategic goals in today’s complex environment.
Tony Mauro is a Senior Consultant with RAS & Associates. He has more than 12 years of consulting experience partnering with Fortune 500 organizations to improve their supply chain processes and capabilities.
George Davison, a Consultant with RAS & Associates, successfully managed large operational and data-driven projects in the finance, real estate, energy and aerospace and defense industries.