A DDSN seeks to reduce risk and respond directly to the threat of marketplace variability by combining lean toolsets and adaptive processes to synchronize supply and delivery flexibility with the demand-pull cascading through the supply chain.
Implementing demand-driven concepts plays a significant role in the success or failure of a form. For example, based on SAP benchmark data [24], supply chains guided by a DDSN philosophy have increased fill rates and reduced stock outs by 3–10%, reduced inventories by 17–15%, improved asset utilization by 10–15%, decreased cash-to-cash cycles by 10–13%, and reduced waste and obsolescence by 35–50%. In addition DDSN leaders have a higher percentage of perfect order fills, more accurate and timely marketing information, faster response to changes in demand, and execute faster, more effective product introductions and phase-outs.
An effective DDSN helps everyone in the supply chain to create greater value for the customer, forge closer relationships with network partners, and reduce costs. For distributors, demand-driven strategies enable companies to escape from the tyranny of the bullwhip effect. Besides reductions in nonprofitable invento-ries, channel distributors and retailers can also fine-tune stocks so that they can concentrate on stocking exactly what the marketplace wants to buy. Increased agility ensures that delivery nodes can create deeper customer relationships while increasing inventories of full-margins stocks that maximizing revenues and prof-its. Finally, the demand-driven delivery network is able to drastically reduce transportation costs by minimizing channel transfers caused by stocking imbal-ances and overstock returns.
For materials suppliers and manufacturers, DDSN strategies assist channel product producers become more agile so they can operate with shorter production runs, develop more flexible response times and planning cycles, and better manage capacities. By converting production functions from a dependence on long-term plans based on forecasts to pull-based models, manufacturers can focus on mak-ing what customers actual want instead of just pushmak-ing products into the delivery channel that so often results in obsolescence, excess carrying costs, and price mark-downs. Finally, demand-driven strategies enable producers to focus on product innovation, create close linkages to customers and suppliers in the development life cycle, and synchronize product introductions with channel marketing efforts that highlight brand differentiation and enhance customer loyalty.
Summary and Transition
Driven by new marketplace challenges and the growing networking capabilities of information technologies, companies in the mid-1990s began to dramatically rethink the concept and practice of managing their supply chains. The driving force of this new concept, SCM, sought to merge operations and organizations across company
boundaries and link critical supply chain partner competencies in the search for new avenues of competitive advantage. However, despite the innovative power of the origi-nal definition, SCM has proven to be too general of a concept to counter the pressures of globalization, financial markets demanding more effective use of capital, accelerat-ing innovation cycles, and customers demandaccelerat-ing to be treated as unique individuals characterizing today’s marketplace. Competitive SCM now requires companies to move beyond the standard definitions and embrace new ideas and technologies if it is to provide new sources of market leadership.
The object of this chapter is to detail the evolution of SCM from its logistics foun-dations into three new channel process models capable of providing supply chains with fresh ideas and management practices to respond successfully to today’s increas-ingly complex global environment. The first model can be said to be concerned with cost management and encompasses a set of principles and tools designed to increase supply chain productivity and profitability by ruthlessly reducing wastes found anywhere in the channel network and the establishment of a culture of continu-ous improvement. This process model is known as lean SCM. The second approach, operations performance, is focused on ensuring supply chain execution functions are as agile as possible in the face of demand variability. This method is concerned with supply flexibility and is known as Adaptive Supply Chain Management. The final approach, customer-centered, is concerned with the continuous development of supply chain capabilities and resources to provide total value to the customer. This method is known as DDSN management.
As is emphasized throughout the chapter, at the heart of the three SCM process models stands the enabling power of today’s integrative information technologies.
What makes these advanced forms of SCM so dynamic is that they utilize technology to enable a basket of supply chain competencies including connectivity, visibility, net-working collaboration, fast-flow operations execution, and optimization. Common to all of these competencies is the ability to manage demand and supply events as they occur anywhere in the organization or in the supply chain. Events can arise from such sources as global positioning systems (GPS) or RFID signals, POS data, photoelectric cells or other monitoring devices, online orders, or other sources. The key is to shorten the span of latency that begins to build from the moment an event occurs until it the data is received at the furthest downstream node in the channel ecosystem. The con-tinuous shrinking of supply chain information latency is the objective of lean, adap-tive, demand-driven networks and the utilization of technologies to automate and informate event information the benchmark separating those supply chains capable of rapid change and restructuring from channel laggers.
In the end, lean, adaptive, demand-driven supply chain create value through five critical capabilities [25]. The first is centered on the ability to “sense” demand in the supply network through joint value creation/demand visibility into markets, seg-ments, and customers. The second capability resides in the availability of agile, flex-ible supply network components to support demand-driven networks. The third is the ability to leverage innovation drivers such as quality-by-design (QbD), design
for manufacture, distribution, and market. The fourth capability strives to leverage S&OP and network design as core processes to deliver profitable and balanced trade-offs across the value network. And finally, the last capability centers on the continu-ous pursuit of agility to profitably shape demand across the supply network.
As we see in the next chapter, competitive advantage today will go to those supply chains that are not only lean, adaptive, and demand-driven, but that also cultivate intimacy with the customer. Customer intimacy opens up an entirely new region of SCM by seeking to manage the customer’s experience with a company and its products. Customer intimacy seeks to build rich relations with customers at every network touch point by delivering information, service, innovative products, and interactions that result in compelling experiences that build loyalty and add value to the network community.
Notes
1. These challenges were identified in David Frederick Ross, The Intimate Supply Chain:
Leveraging the Supply Chain to Manage the Customer Experience. (Boca Raton, FL: CRC Press, 2008), p. 112.
2. James P. Womack and Jones, Daniel T., Lean Thinking: Banish Waste and Create Wealth in Your Corporation. (New York: Simon & Schuster, 1996), pp. 15–26.
3. Karl B. Manrodt, Abott, Jeff, and Vitasek, Kate, “Understanding the Lean Supply Chain: Beginning the Journey,” APICS White Paper, (November, 2005), p. 7.
4. Poirier, Charles C., Bauer, Michael J., and Houser, William F., The Wall Street Diet:
Making Your Business Lean and Healthy. (San Francisco, CA: Berrett-Koehler Publishers, Inc., 2006), p. 63.
5. See the excellent summaries of the meaning of Lean waste in Taiichi Ohno, The Toyota Production System, (New York: Taylor & Francis, 1988), pp. 1–143; Darren Dolcemascolo, Improving the Extended Value Stream: Lean for the Entire Supply Chain.
(New York: Productivity Press, 2006), p. 134; and Joel Sutherland, and Bob Bennett,
“The Seven Deadly Supply Chain Wastes,” Supply Chain Management Review, 12, 5, July/August 2008, 38–44.
6. Hiroyuki Hirano, 5S for Operators: 5 Pillars of the Visual Workplace. (Portland, OR:
Productivity Press, 1996).
7. The concept of SMED or single-minute exchange of dies was introduced by Shigeo Shingo in his book A Revolution in Manufacturing: The SMED System. (Portland, OR:
Productivity Press, 1985).
8. Michael Treacy and David Dobrin, “Make Progress in Small Steps.” Optimize Magazine, December 2001, 53–60.
9. C.K. Prahalad, and Venkatram Ramaswamy, “The Collaboration Continuum,”
Optimize Magazine, November 2001, 31–39.
10. Poirer, et al., pp. 179–184.
11. Dolcemascolo, Improving the Extended Value Stream, pp. 169–180.
12. Manrodt, et al., “Understanding the Lean Supply Chain,” pp. 10–12.
13. According to the research, best-in-class companies felt that their Lean SCM projects increase product quality by 35%, reduced inventories by 26%, improved customer
service by 25%, and reduced order cycle times by 22%. Maura Buxton, and Cindy Jutras,
“The Lean Supply Chain Report,” Aberdeen White Paper, (September, 2006), p. 12.
14. One group of researchers found that inventory shortages had a deleterious affect on company profitability and financial well-being. It was discovered that stock prices for companies with disruptive parts shortages under-performed their benchmarks by an average of 25%. In addition they experienced a median decrease in operating income of 31%, a decrease in sales of 1.2 percent, and an increase in costs of 1.7 %. Vinod R.
Singhal and Kevin Hendricks, “The Effect of Supply Chain Glitches on Shareholder Wealth,” Journal of Operations Management. (Vol. 21), 501–522.
15. An excellent example of a pragmatic approach called “SMART” can be found in Dirk De Waart, “Getting Smart About Risk Management,” Supply Chain Management Review, Vol. 10, No. 8. (November 2006), 27–33.
16. “Adaptive Supply Chain Networks,” SAP AG White Paper, (2002), pp. 8–9. This paper can be found at accessed August 10, 2009 http://www.sap.com/usa/solutions/business-suite/scm/ pdf/50056466.pdf.
17. This section has been summarized from Ross, Intimate Supply Chain, pp. 143–146.
18. Lora Cecere, Debra Hofman, Roddy Martin, and Laura Preslan, “The Handbook for Becoming Demand Driven,” AMR Research White Paper, (July 2005), p. 1.
19. See the comments in Tony J. Ross, Mary C. Holcomb, and Brian Fugate, “Connectivity:
Enabling Visibility in the Adaptive Supply Chain.” Capgemini White Paper, (2005), pp. 1–6, accessed August 20, 2009 http://www.capgemini.com/resources/thought_
leadership/ connectivity_enabling_visibility_in_the_adaptive_supply_chain/.
20. This analysis can be found in “The Supply Chain Visibility Roadmap,” Aberdeen Group White Paper (Aberdeen Group, November 2006), p.2.
21. These points have been summarized from Ross, Intimate, p. 156.
22. Tam Harbert, “Why the Leaders Love Value Chain Management.” Supply Chain Management Review, Vol. 13, No. 8 (November, 2009), pp. 12–17.
23. These five principles can be found in James P. Womack, and Daniel T. Jones, Lean Solutions: How Companies and Customers Can Create Wealth Together. (New York: Free Press, 2005), p. 2.
24. Mark Panley, and Stefan Boerner, “Demand-Driven Supply Networks: Advancing Supply Chain Management,” SAP White Paper (2006), p. 1, Accessed August 25, 2009, http://www.sap.com/asia/industries/pdf/met_exec_demand_driven_SCM.pdf.
25. Referenced from AMR Research “Value Chain Transformation” (June 29, 2009), reproduced in Harbert, p. 17.
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