The demand-driven supply chain has emerged in response to the significant risks associated with not being able to effectively respond to the customer. Companies that expect to thrive in the twenty-first century will be those that understand that it is the customer and not the producer or distributor who determines mar-ketplace direction. It is the customer who has assumed the power to direct the design of product and service content, pricing, transaction management, and information transfer. Rather than simply a marketing category, today’s cus-tomers expect to be treated as an individual, and requires suppliers to provide them with configurable, solutions-oriented bundles of products, services, and information custom designed to meet their unique wants and needs. Finally, today’s customers are simply demanding more control over the buying experi-ence, easy to use order management tools that empower them to design their own solutions, flawless and speedy fulfillment, robust information content, ease of search, ordering, self-service follow-up, and effortless methods for financial settlement.
Effectively responding to today’s customer requires businesses and their sup-ply chains to possess the following demand-driven competencies as illustrated in Figure 4.8. A detailed discussion is as follows.
Demand-Driven
In yesterday’s “product-centered” business environment, the “voice of the cus-tomer” was rarely considered. In that era, the focus was on brand management, mass production, economies of scale and scope, and push replenishment systems.
Demand for products was shaped by forecasting, advertising, promotions, and
pricing—customers could any color automobile they wanted as long as it was black!
Requirements for customization, last-minute changes, a unique, individualized experience, and flexibility in ordering, payment, and delivery were subservient to a
“one-size-fits-all” mentality.
In contrast, today’s demand-driven networks have replaced the factory-driven model of the twentieth century with a customer-centric pull model.
Being demand-driven means that organizations are dead-focused on knowing what influences customer purchasing and their requirements for product fea-tures, price points, delivery, and buying habits. But putting the customer at the center of the supply chain can only occur when businesses have in place lean, adaptive supply chains and information technologies that enable them to receive timely and accurate demand signals from any point in the channel network.
Knowledge of actual demand enables companies to quickly reconfigure their supply chains to facilitate the fast-flow alignment of goods and information that
Demand-driven supply network Demand-driven
• Demand-pull processes
• Real-time data on network transactions
• Demand signaling systems
• Demand-focused products
• Demand-focused processes
Fulfillment/replenishment flexibility
• Change for forecasting to demand-pull
• Use of ATP/CTP for order promising
• Cross-functional teams for fulfillment and replenishment
• Demand-driven scheduling and reorder calculation
Demand/supply visibility
• Global visibility to actionable data
• Utilization of ‘what-if” simulation modeling
• Deployment of performance scoring mechanisms
Supply chain collaboration
• Desire to share and interact on marketplace intelligence
• Joint operations
• Coordinating competencies and joint visioning
Adaptive channel mgmt Lean optimization
• Focus on lean principles to create customer value
• Activating the demand-pull
• Merger of company and supply chain lean projects
• Focus on metrics to guide lean demand-pull projects
• Standardization and rationalization of all channel process to support the demand-pull
Figure 4.8 Competencies of demand-driven supply networks (Adapted from David Frederick Ross, The Intimate Supply Chain, CRC Press, Boca Raton, FL, 2008, p. 154.)
matches customer service need for distinct product/service solutions. The speed and accuracy of response to each channel customer touch point presents chan-nel players with the opportunity to expand the customer experience and deepen value-creating relationships.
Demand-driven networks succeed by creating value for their customers, their network partners, and their own companies by enabling the continuous realignment of all channel processes, infrastructure, and information flows to serve the downstream source of demand rather than the upstream constraints of factories and distribution systems. Such an objective is achieved by view-ing the supply and delivery channel not simply as a pipeline for the transfer of standardized goods and services, but as an integrated network capable of quickly locating and adapting resources that treat each customer requirement as unique. Supply chains that can quickly react to customer needs, present unique buying experiences, and continuously provide the innovative product/
solution mixes will be those who will be able to lock in brand awareness, create an exceptional customer service benchmark, and are recognized as the supplier of choice among peers.
Demand/Supply Visibility
Perhaps the number one priority of a demand-driven network is improving visibil-ity to demand as it occurs anywhere in the supply channel. Agile supply networks excel in deploying demand-gathering, planning, and execution technologies that reveal events as they actually occur. This information, in turn, enables them to rapidly reconfigure and synchronize supply and delivery resources through auto-mated exception handling, directed workflows, directed resolution, and overall network management [19]. Performance-wise, companies with highly visible sup-ply chains have customer service levels of at least 96%, reduced inventory levels of 20–30%, and are twice as likely as their competitors to have an on-time delivery rate of 95% or higher [20].
At the heart of supply chain visibility is found technology tools that connect supply network partners and focus them on customer value delivery. Connectivity here can refer to a wide range of data transfer processes. In its ideal form, connec-tivity would consist of a single electronic communications hub linking individual ERP, CRM, S&OP, warehouse management, and transportation systems. These technologies would provide for the merger, harvesting, and analysis of supply chain data intelligence associated with critical data such as demand forecasts, customer and supplier order statuses, shipment status, production schedules, and finished goods levels essential to effective business decision-making. Regardless
of the technology, effective connectivity requires the application of the following enablers [21]:
Demand Forecasting.
◾ Although actual demand signals provide critical data driv-ing the demand-pull, effective forecastdriv-ing is still needed for long-term planndriv-ing and new product introduction. Today’s forecasting tools can draw upon simple models or complex algorithms that attempt to project future demand driven by data from sales, invoice, POS, lost sales, and promotion histories.
Demand Shaping
◾ . This enabler permits supply chain nodes to simulate demand intensity through the use of sales techniques such as channel pro-motions, bonus and incentives, pricing, and advertising and marketing strategies.
Alert Signal Management.
◾ Once notification of demand or supply
abnormali-ties occurs, the close networking of trading partners provides for the efficient rebalancing of channel resources. Visibility tools include alert-driven signals revealing unplanned product shortages (or excesses), emergency plant shut-downs, process failures, unexpected outlier demand, and evidence of wide variance of actual demand and supply against the plan.
Predictive Analytics and Simulation.
◾ The ability to capture, analyze, and
simu-late actual supply chain performance is essential to provide visibility to the health of the customer value channel.
As examples, companies such as P&G, Wal-Mart, and Cisco are taking demand and supply visibility way beyond just receiving forecasts from their customers. Utilizing techniques such as shopper loyalty cards and POS data, these companies are tapping into enormous reservoirs revealing what their customers’ retime needs are. Wal-Mart, for example, provides P&G access to its huge database of POS information. Other organizations are working closely with key suppliers and customers to develop linked S&OP tools so they can see the pulse of supply and demand in the supply channel. P&G calls this ability to “sense” demand as it happens “joint value creation,” says Roddy Martin, senior vice president and research fellow at AMR Research.
“The new challenge for the supply chain is in fact getting and translating real demand data” [22].
Enabling the emergence of effective demand/supply visibility management is a complex affair requiring the linkage of several information technologies.
At its foundation each company within the supply chain must have a solid IT infrastructure that provides for system integrity and usability. Next, individual companies must possess a comprehensive EBS that provides for data collec-tion, process standardizacollec-tion, and planning and execution applications. Finally, meaningful supply chain visibility can only emerge when the systems of chan-nel partners can be connected together individual irrespective of hardware and software.
SAP can help companies lay the foun-dation for DDSN. SAP solutions and services provide the following support:
SAP, Technology and DDSN
The SAP Advanced Planning & Opti-mization component ties demand plan-ning and supply network optimization to production planning and detailed sched-uling, as well as transportation planning.
The SAP Inventory Collaboration Hub component helps companies develop responsive replenishment and supplier-managed inventory.
• Adaptability – Adaptability is the key to the long-term viability of DDSN.
When DDSN functions most tively, it immediately adapts to changes in demand – all along the supply chain.
SAP solutions that foster demand casting also help develop an advanced forecasting capability. That leads to load building and eventually to shment with order generation, subdaily planning, and dynamic sourcing.
Source: Panley, Mark and Boerner,
• Harmonization – The SAP Weaver platform provides the dation for harmonizing processes and data. In particular, Netweaver can help companies effectively manage master data across the entire supply and demand network to generate “one version of the truth.”
• Integration and internal tion – SAP software provides the right collaboration and analytic tools to support user productivity, along with predefined analysis configurations and rapid integration to other applications.
• External collaboration – A key capability for DDSN is extension of the internal corporate network to suppliers and customers. The network then seamlessly communicates shifts in demand to suppliers who in turn respond with the materials necessary for manufacturing to meet the demand.
Adaptive Channel Management
Supply chains can not hope to effectively leverage the demand-pull signal with-out having the agile infrastructures, scalable resources, and speed of information transfer necessary to continuously align material suppliers, contract manufacturers, and logistics providers spread across a global landscape. The key to adaptability in today’s complex, multienterprise supply networks is the ability to quickly make tradeoffs and compromises to resolve the many issues ranging from new product introduction to emergency orders that can clog the supply chain. Optimizing sup-ply chain agility requires three critical capabilities:
1. Global Visibility to Actionable Data. This competency requires connectivity between all internal and external supply chain systems combined with proac-tive alerting to enable channel action teams to constantly and continuously capture data as to all forms of changes, from inventory to purchase agreements, occurring in the supply chain. Such intelligence empowers strategists across the channel network to make intelligent, reality-based judgments affecting everything from major channel realignment to disaster and recovery.
2. Ability to Rapidly and Collaboratively Assess an Array of Possible “what-if”
Alternatives. Today’s information technologies infrastructures enable close client interface so that action teams both inside and outside the enterprise can communicate simulation details and potential results so that affected channel partners can participate in identifying optimal courses of action and weighing consequences.
3. Capability to Deploy a Comprehensive Performance-Scoring Mechanism. This competency leverages shared metrics and performance scorecards that accu-rately predicts the impact of possible responses and weighs alternatives against company goals and demand requirements so the best course of action can be implemented that meet company and supply chain goals and profit targets.
Analytics assist in helping supply chains know their performance and where bottlenecks are emerging. Metrics enable companies to be agile and flexible by providing a detailed window on how the supply chain is performing real-time and illuminates areas for reconfiguration.
Demand-driven agility enables supply chains to effect timely, meaningful changes to the channel model so they can rapidly respond to changes in demand, supply, and product. Some changes may be long-term, such as moving distribu-tion closer to a customer to optimize shipping time and lower transportadistribu-tion costs.
Some may be driven by planning, such as when supply chains can couple their productive and delivery functions with forecasted and daily actual demand trig-gers. Then again, immediate marketplace changes might enable agile delivery chan-nels to offer substitute products or execute postponement strategies; manufacturing capacities might be shifted to products with rising demand to drive higher volumes for products customers are currently demanding.
Lean Optimization
Being “demand-driven” means that companies are engaged with providing cus-tomers with the best products and the optimal delivery system. The demand-driven concept directly applies to the essential principles regarding lean customer respon-siveness: providing the value actually desired by customers, optimizing the value stream for the delivery of each product/service, engineering continuous flow to speed response times, enabling the customer to pull value from the supply chain, and actualizing an endless search for perfection [23]. Such demand-driven objec-tives can only be achieved when entire supply ecosystems continuously clear away constraints, collapse processing times, remove redundant operations steps, even eliminate entire supply chain levels when necessary in order to optimize process, product, and delivery capabilities.
By applying lean principles, companies can effectively pursue waste reduction at all supply chain levels, leverage supply chain partnerships and technology tools to continuously build and sustain a high-velocity stream of value to the customer, and
finally, deploy cross-channel metrics for effective quality, change management, and collaboration to maintain a focus on network continuous improvement. The companion to lean is the pursuit of quality. This process begins with an assess-ment of existing conformance to quality targets, delivery performance, and total cost, then proceeds to quality approaches that link lean, Six Sigma, and other toolsets, and concludes with the application of quality targets to the entire supply chain. Lean optimization enables the delivery of benefits to customers in the form of better quality, shorter lead-times, expanding breadth of product lines, simpli-fied pricing and payment, higher inventory turns, lower product costs, and lower transaction costs.
Supply Chain Collaboration
The adoption of the lean, adaptive, demand-driven supply chain model requires companies to transform their supply chains from linear, sequential processes into collaborative networks in which communities of customer-centric companies share knowledge, intelligently adapt to changing market conditions, and proactively respond to more unpredictable business environments. Demand-driven collabora-tion takes place between a company and its suppliers, contract partners, and cus-tomers as illustrated in Figure 4.9. Suppliers and contract manufacturer/service provider collaboration streamlines the flow of replenishment information, materi-als, components, transactions, visibility to order status, and financial settlement.
These functions in turn support customer collaboration centered on the ability to sense demand signals and automatically replenish the customer’s requirements on the basis of actual demand.
Logistics service provider Enterprise
Contract manufacturer
Component/
materials supplier Customer
Figure 4.9 Supply network collaboration participants.
Effectively supporting collaborative demand networks are a variety of tech-nology tools. For example, with a customer collaboration strategy, replenish-ment processes become more responsive and are triggered primarily by actual customer demand information from such sources as POS and electronic prod-uct code (EPC). These tools enhance visibility across the entire supply chain and enable channel suppliers to manage and execute marketing events, such as promotions and deal, as well as disruptions and last minute changes. Visibility also enables channel players to assess automatically the impact of out-of-stock information, apply the resulting information for sales forecasting and drive replenishment scheduling and communicate the results to business partners.
Information regarding changing patterns in customer consumption can also assist to more efficiently control vendor-managed inventory (VMI) at the cus-tomer’s site. Finally, supply chains can also leverage collaborative planning, forecasting, and replenishment (CPFR) and S&OP technologies to directly export forecast/demand requirements, production performance, and available inventories directly into suppliers’ systems.
Fulfillment/Replenishment Flexibility
The management of fulfillment and replenishment functions has traditionally been marked by extreme variability regardless of the precision of today’s comput-erized tools. The scenario is all too familiar: forecasts are created and loaded into the planning system, materials and production are scheduled, and, based on the outcome, warehousing and shipping resources are calculated to provide optimal customer demand fulfillment at the moment of truth when the customer picks the product from the shelf. In reality, regardless of system sophistication, this ideal rarely materializes. Part of the problem is timeliness and accuracy of the data. Part is depending on forecasts that reflect the past buying habits of custom-ers. Then again, part is result of customers simply changing tastes or reacting to the latest “new thing.”
Demand-driven networks require companies to abandon statistical/forecast-driven forms of planning for inventories and fulfillment. The ability to quickly modify plans and alter supply execution is a hallmark of world-class supply chain companies. Through the connectivity enabled by POS systems, RFID, event man-agement tools, dynamic S&OP, and collaborate forecasting and planning, DDSN provides the entire supply chain with visibility to demand and product flows and enables supply channel nodes to sense possible problem situations caused by changes in demand or supply capacities. As is illustrated in Figure 4.10, effective DDSN management rests on an information infrastructure that provides a network for the entire supply chain and enables visibility to channel events, exception messaging to alert planners of out-of-bounds situations, and automated decision-making utiliz-ing prebuilt scenarios and alternative courses of action that will enable businesses to dynamically respond to plan (or replan) in real-time.
A DDSN enables channel fulfillment processes to become driven by the actual pull of the customer order as it its impact cascades down through the supply channel.
This capability means that supply partners can now manage total channel demand activity and not just a single order being placed on some channel sales point. The overall goal is not only visibility of the customer order to the supply chain, but also the ability to synchronize demand as it matures with existing channel strategies, service-level agreements, order automation techniques available (EDI, Web, VMI, phone), and product availability propositions. Among the steps to building effective DDSN fulfillment can be found the following:
Visibility at the point of purchase for in-stock availability and exception
mes-◾
saging for impending stock-out. This should include clear policies regarding product substitutions and shortages before they occur.
Reconfiguration of customer order processing systems to pull-based systems
Reconfiguration of customer order processing systems to pull-based systems