Why Demand Chain Management is Vital for Suppliers and Distributors

Manufacturers, distributors and their partners should reframe supply chain management as demand chain management.

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Supply chain management (SCM) is a rapidly growing segment of the tech sector. According to research from Gartner, the SCM software market increased by 8.6% in 2019, and this trend is expected to pick up momentum in the coming years. As companies realize that supply chain digitization can lead to drastic gains in efficiency and product quality, they’re increasingly adopting technologies that can improve end-to-end visibility, track trading agreements and increase communication and collaboration.

However, it’s essential for companies to remember that SCM is a means to an end -- customer fulfilment and satisfaction. You could have the most sophisticated digital supply chain solutions in the world, but if they don’t ultimately lead to increased margins, they aren’t doing you much good. This is why manufacturers and distributors need to adopt an integrative approach that aligns every element of the supply chain around concrete goals like end customer satisfaction, a process that can’t be executed without digital resources.

Manufacturers, distributors and their partners should reframe SCM as demand chain management (DCM), an operational approach that makes relationships between partners less siloed and more streamlined and entirely focused on fulfilling customer need. Different links of the supply chain often have their own targets and processes, but DCM reorients all companies around a set of well-defined common goals. This can reduce friction in relationships along the supply chain, make companies more outcome-oriented and lead to higher performance all around.

How demand chain management secure customer satisfaction

One reason SCM software has become so popular in recent years is the fact that digital integration has become increasingly necessary to manage sprawling supply chains with many moving parts. But, supply chain integration isn’t a goal companies pursue for its own sake – by increasing transparency, establishing dispute resolution mechanisms and ensuring that companies communicate and collaborate effectively, supply chain partners are able to deliver products on time, identify defects and other problems and pass cost savings along to consumers.

For example, supply chain visibility is one of the most fundamental components of DCM, and it has a direct relationship to how consumers perceive the companies they do business with. According to a 2020 study published in SSRN, researchers found that “increasing visibility always strengthens consumer trust.” Considering the fact that 81% of companies say they don’t have full visibility into their supply chains and 54% have no visibility whatsoever, it’s clear that this element of DCM can improve customer satisfaction.

Visibility is just one aspect of DCM that has a direct relationship to customer satisfaction. There are many others, from the ability to quickly adapt to changing consumer demands to the customization of product deliveries based on distributors’ specific needs. As the world has become more customer-centric, the effectiveness of supply chains will be judged according to how well they adhere to the principles of DCM.

Every link of the supply chain has a role to play

The relationship between manufacturers and distributors is inherently synergistic. While distributors have an intricate understanding of customers’ priorities and concerns due to their frequent interactions and knowledge of local markets, manufacturers have to be capable of assimilating this knowledge and developing innovative, high-quality products that meet the ever-shifting demands of the market.

According to a recent PwC report, there’s an emerging “trend toward increasing connectivity in supply chains – both within the company and beyond its walls.” Although manufacturers and distributors have different roles to play, the end goal is always to provide value to customers – healthy supply chain ecosystems are built around this fact. This means real-time data sharing, the use of cloud-based productivity tools, and the deployment of other digital tools that are driving a paradigm shift from internal optimization to cross-company collaboration, alignment and joint execution.

For cross-company collaboration to work, it’s vital for manufacturers and distributors to have strong incentives to continue working with one another. This is why rebates are an invaluable tool for DCM, as they help partners avoid waste and deliver the products customers are demanding on time. Both parties need to know which products to sell, in what volumes, to which customers, and in what time frame, and there should be alignment on the goals companies are pursuing. But when trading programs fail to anticipate shocks, production delays and changing economic circumstances, they need a rebate system to bring everything back into alignment.

How technology drives DCM

When manufacturers and distributors develop trading programs, they should act as though they’re a single entity. This means information should flow freely across the supply chain, trading programs should be informed by the latest data, departments and teams should have a single cohesive platform for collaboration, and companies should ensure that they’re aligned on end goals such as customer satisfaction and sales targets.

As EY recently noted, the legacy solutions that manufacturers and distributors are using now don’t allow them to manage complex, dynamic relationships. “It has become difficult to manage network-level agreements from inside a single enterprise resource planning (ERP) system.” This is why more comprehensive digital solutions are necessary to help companies negotiate rebates and arbitrate disputes, develop rigorous forecasting tools that allow them to build trading programs around economic reality and provide the communication and productivity tools they need to collaborate across the supply chain. It’s no surprise that, according to PwC, digital leaders in the supply chain sector simultaneously cut costs and increase revenue compared to their competitors.

Distributors should be a natural extension of the manufacturers they work with, and this doesn’t just mean the alignment of critical processes. The essence of DCM is ensuring that these processes are always working toward the end goal of satisfied customers.