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Five reasons why our supply chains aren’t demand driven

 

It is difficult to come across many supply chain leaders today who do not subscribe to the principle of Demand-Driven Supply Chains. As supply chain experts we continue to write about, provide webinars, present at conferences, and assist numerous client companies to progress towards the Demand-Driven Supply Chain model. Software suppliers have promoted and developed software to help enable the Demand-Driven Supply Chain model.

Business sense tells us that we want to sell what we make, or buy; we want to carry in available stock and we want to keep our supply chains operating at minimum costs and maximum speed to provide these goods to the customer.

It is difficult to come across many supply chain leaders who are satisfied that their supply chains are operating under optimum demand-driven indicators. Even the best supply chain companies (for example: the Gartner top 25) have supply chain leaders who are dissatisfied or uncomfortable with their supply chain performance in the role of demand-driven principles and objectives.

What is it that is holding back Demand-Driven Supply Chains? Why can’t the best supply chain leaders achieve demand-driven performance goals? Why can’t more supply chain leaders commit to the “demand-driven journey” (as Gartner is now referring to it) and gain corporate support for a Demand-Driven Supply Chains?

I believe the five most prevalent reasons are:

  1. First, we know that securing investment budgets for “demand-driven journeys” is a challenge. Today’s business conditions demand “short-term paybacks” for specified projects. Any initiative that requires a “demand-driven journey” is often rejected, unless the roadmap for the “demand-driven journey” includes clear incremental value. The best roadmaps are based on “do now, do next, and do later” projects each with value-based improvements along the way. When certain fundamentals are foundational, however, they often do not make the capital budget filter.
  2. Second, Demand-Driven Supply Chains start with understanding the customer demand patterns, consumer preferences, and “why” a customer will complete a purchase. Errors in sales forecasting receives the attention. Some companies have been working on reducing forecasting errors for years with limited success. New processes, new technologies, new hires, and new practices have all been tried, yet a “single version of the truth” remains elusive. S&OP processes, which most all companies have in place, are too often “stuck” on analyzing forecast errors, such that demand-driven operations cannot gain traction.
  3. Third, we continue to observe demand-driven performance objectives that are simply too basic with targets that are somewhat straightforward to meet. While this approach can be “business correct” and gain some inherent credibility for supply chain leaders, it is not directed at the potential value that Demand-Driven Supply Chain excellence yields. Improving inventory turns by 10%, process cycle times by 5%, supply chain costs by 5%, or order fill rates by 5%, are good but clearly are not seen as significant. These set the bar way too low, and may cause Demand-Driven Supply Chains to be assumed as good. This is not nearly optimal. This creates attitudes of complacency focusing too much attention on transactions and not on the real power of transforming processes.
  4. Fourth, and admittedly a challenge, is to focus on your best customers as well as internally. Often, Demand-Driven Supply Chain improvements can come from collaborative processes such as shared forecasts, shared methodologies, and early alerts on promotions or new product introductions. Years ago it was thought that such collaborations required the retailer, or the supplier, to “get its house in order first”. It has been learned that both parties can improve faster by sharing and collaborating. While P&G/Walmart led that awakening, now over 20 years later, and with much prodding from Gartner (Stage 3 – Integrate to Stage 4 – Collaborate), there is too little Demand-Driven Supply Chain collaboration industry-wide. Gartner estimates only 10% of companies are at this stage.
  5. Fifth, other Initiatives can and should be linked to Demand-Driven Supply Chain goals such as reducing cost-to-serve and supply chain segmentation. While customer satisfaction is often cited as a reason to launch most initiatives, this is rarely defined, measured, or differentiated enough for Demand-Driven Supply Chain operations. Defining the value propositions for why customers will buy a product is critical to the business strategy. All too often, the necessary operations strategy of defining what capabilities are needed to meet those value propositions, whether they be based on cost/price, service, ease of doing business with, service during promotions, availability, speed from order-to-delivery, or return policies are missed.

At Tompkins International, our mantra is “Strategy – Structure – Execution”. Demand-Driven Supply Chains require attention and commitment at every stage of progression and reinvention. Future TO-BE visions need to include lofty goals such as those that Demand-Driven Supply Chains enable then, incremental targets can be adopted to form the roadmap to success.

It is time for all supply chain leaders to better define the value of Demand-Driven Supply Chains. This needs to be communicated to corporate executives, enterprise-wide operations, sales, financial managers, customers, and suppliers. Only then will the “demand-driven journey” really gain traction and become a corporate-wide goal, and thus a supply chain-led transformation that yields important business value.

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Gene Tyndall

Gene Tyndall is Executive Vice President, Global Supply Chain Solutions at Tompkins International. He has co-authored four books, including Supercharging Supply Chains. In recognition of his global contributions, he was awarded “Global Logistics Person of the Year 2007″ by the Global Institute of Logistics and was elected into its Hall of Fame. InformationWeek also recognized him as “Innovator of the Year” 2002.