Archive for the ‘Demand management’ Category

Aberdeen has recently published new insights on the growing need for demand management (access the full report here - paid subscription required).  Among the many good insights is the graphic above that shows the pressures forcing companies to focus on demand management.

These pressures, if not adequately managed, can impact both the top and bottom line performance of a company.  This is increasingly the case, indicating the growing strategic nature of supply chain management and demand management capabilities within global manufacturers.

Customer expectations continue to increase while brand loyalty is weakening.  Customers have more globally available options, can do more comparison shopping and have heightened expectations from their vendors/suppliers.

These pressures collectively are having companies look at strategies to become more demand-driven.  For years manufacturers have focused their energies around building the best plans possible and then seeking execution efficiency.  This meant building optimal plans and automating processes to streamline execution and require little to no human intervention.  This made sense as the focus was a push-oriented model where there was greater control over supply management, capacity, production and the like.  But the new competitive requirement is to become demand-driven, and the old way of working is no longer sufficient.

In a demand-driven world, companies have to come to grip with the fact that you can’t plan the customer.  The processes, tools and expertise the company had around the push-model are ill-equipped for the pull-model required to become demand-driven.  Said another way, what got you to a market leadership position in the 20th century is likely not enough alone to keep you there in the 21st century.  In a demand-driven world, there are an increasing number of high visibility judgment calls that need to be made every day to deal with the deviations to the plan.  This could be an important customer calling with a request to increase their order and wanting to know, now, if you can do it or not.  It could be an unexpected supply disruption that requires an immediate reallocation to meet demand requirements.  These issues require people to act and react in a timely and accurate way.  The dynamics of the response process are, in many ways, completely the opposite of the traditional planning process.

Empowering people to act is paramount.  Front-line decision makers need visibility, tools to collaborate and figure out the impact of accepting the change, to see, analyze and simulate alternative resolutions before pulling the trigger on a major tradeoff.

The dynamics have changed - have you?

Dr. Larry Lapide of MIT has written a piece here about the order promising process and some best practices for making it work better.  Larry talks about the fact that order promising is where demand and supply balancing really intersect.

This is a key challenge we talk to customers about all the time.  We’re increasingly hearing that customer expectations are on the rise while loyalty is on the decline.  The reality is that customers expect to make last minute changes now, and they expect you to commit to their changes - or they’ll go elsewhere.

Front-line decision makers throughout the supply chain need to be armed with tools to help them in these decisions.  Increasingly they are being asked to make promises to deal with the rising number of unexpected changes that are becoming the norm.  They need to be able to quickly determine if it’s possible to do what the customer is asking or not.  And, increasingly, if the immediate answer is no (after all, increasingly what the customer is asking for was not in the original plan), what is possible?  What tradeoffs could be made that would make it possible to satisfy the request of this important customer and what would be the implications of doing that?

If you can’t answer these questions quickly and accurately, then you aren’t in a position to satisfy your customers.  You risk not only losing your best customers, but you may be incurring significant costs trying to scramble to meet their needs.

If unexpected changes due to increasingly volatility are becoming the norm, the key is to acknowledge this and put processes and systems in place to arm your front-line decision makers to act quickly and decisively.

A post here at SupplyChainer asks what it takes to create a good promotion management system.  I commented at the site, but have posted below as well.

** my comment **

Agree with your thoughts.  You mention that you should have a plan B in case demand is higher than you speak.  I would take that one step further.  You need to ensure that your front-line decision makers are armed to deal with whatever comes up.  You might have, as you noted, an upside surprise in demand.  You could also see demand vary in geographies differently than you had planned.  There’s also the potential for supply disruptions that could impact your ability to meet the demand that the promotion generates.

The reality is that you just don’t know.  Unless you can predict with absolute certainty how your promotion will impact your business, you need to be able to respond to unexpected issues.  A lot of money goes into a promotion, and the last thing you want is to find that you can’t respond as needed to unexpected outcomes.

Empowering front-line decision makers with the ability to quickly sense issues, to fully analyze their impact and then to collaborate on a profitable response, you’ll go a long way toward ensuring a successful promotion.

There’s a post here at AlwaysOn asking whether or not demand is finding supply.  The post accurately reflects the shift underway in most companies.  That is, there’s a transformational shift underway from a push-centric business model that is dominated by supply management to a pull-centric model dominated by demand management and the customer.

As the post states, the implications of this are huge.  It was one thing to plan your supply and capacity, it’s another thing to try to plan the customer.  It just doesn’t happen.

What we’ve continually seen is that companies have put in place processes and tools (mainly your traditional demand planning and supply planning systems along with ERP) to manage the old push-centric model, but don’t yet have tools to excel in the new pull-centric, customer-focused business model required today.  The result - a lot of people using spreadsheets to try to cope.

Manufacturers need to evaluate the implications of this transformational shift on their business and develop new processes, supported by new tools, to become more responsive to changing customer demands.Â

I recently came across this article from Larry Lapide at MIT.  The basis of the article is discussing the need to balance demand and supply at all time intervals.

My experience has been that this is much easier for manufacturers to accomplish over the long-term than it is the short-term?  Why?  Volatility.  So many things are changing at once today that it makes it hard to maintain your balance (no pun intended).

The first challenge is supply chain visibility.  Most people struggle with this.  What is the actual state of demand - right now?  What is our current state of supply - at this moment?  Where do I have gaps and misalignments?

But visibility alone isn’t enough.  Once I’ve gotten a clear picture of things, I need to make sure everyone else has that same set of facts and that we’re armed with tools to develop a profitable response.  What happens if I change order priorities to meet the needs of a given, highly profitable customer?  What other options exist?  Which is the best option?

When things aren’t going according to plan, it becames a set of decisions that rely on human judgment.  In order to come up with the best action to take - the one that balances supply chain risk with rewards - these front-line decision makers need to have both visibility and tools to collaborate with their colleagues to come up with viable options, to analyze available options and to pick the one that appropriately balances all of the metrics critical to the company.  And all of this has to be done quickly, under intense pressures (especially as you near the end of the quarter).

In case you didn’t see, we formally introduced a new on-demand service today called RapidResponse for Demand Management (you can see the press release here and learn about the product here).  This is very exciting for us on a couple of fronts.

For years we’ve gained success selling our Response Management solutions into the manufaturing/supply chain (the “supply-side”) groups within manufacturers.  These groups struggle with daily changes in demand, supply and product inside the sales and operations planning horizon and have to be able to alter supply plans to profitably respond to these changes.  Our users typically end up being planners, schedulers, materials managers, outsourcing managers, etc.

For some time now, we’ve been getting “pull” from the demand management/fulfillment (the “demand-side”) groups within these companies.  They too are struggling with volatile demand and supply.  In their case, they own demand and are struggling to sense true demand quick enough and see an increasing need to collaborate with their customers around demand.  Likewise, they are responsible for allocating finished goods inventory to ensure that the right products are in the right place at the right time.  What we’ve continued to hear is that demand managers, customer service reps and sales operations staff are struggling.  They lack the needed visibility and exception notification systems to understand what the current state of demand and supply is across an increasingly distributed fulfillment network, and they lack the tools to collaborate with their customers on demand and internally with colleagues to resolve problems.

Enter RapidResponse for Demand Management.  We’ve designed this solution with these user communities in mind.  This new service empowers them to sense demand more quickly, to shape demand and to more profitably respond to demand and supply changes to drive greater levels of customer satisfaction and revenue for the company.  They get an integrated view of demand and finished goods inventory so they can quickly spot misalignments and then leverage tools to determine the most profitable response.

And, when combined with our existing RapidResponse for Manufacturing into an integrated on-demand service, you’re able to see from end-to-end, from customer demand all the way down through component supplies in an outsourced supply chain.  Each group is individually empowered to solve problems within their domain of influence, but can now uniquely collaborate amongst the groups to find the best response to changing conditions.

Our on-demand RapidResponse service supports another key trend I continue to see, and that’s an increasing emphasis on the sales and operations planning (S&OP) process.  Interestingly, while we certainly see a focus on improving the planning process, the more urgent need is at an operational level.  Companies are struggling with how they deliver to the metrics and plans agreed upon in the S&OP meeting given how many things are constantly changing.  Response Management solutions like RapidResponse are designed to empower front-line decision makers with tools for risk tradeoff and response to daily changes inside the sales and operations planning horizon.  This is critical since more and more companies are operating in an environment when many of the assumptions taken into the planning process are proven wrong as soon as you complete that process.

IDC’s Manufacturing Insights has just released their top 10 predictions for 2008 as documented here. Amongst the predictions, IDC notes:

• IT organizations will accelerate spending on collaborative decision environments and incubate multi-enterprise business networks
• IT spending in the supply chain area will focus on fulfillment execution

These are interesting insights. I continue to see that as companies have created ever more globally distributed fulfillment networks and supply chains, the need to collaborate on decisions has increased substantially. The drivers behind this is increasing demand volatility and global competition combined with ever shortening product lifecycles. These drivers are creating an environment of constant change, which is placing a premium on organizations ability to collaboratively respond.

The fulfillment execution insight is also right on the mark with what I’ve been seeing as I talk to large brand owners and manufacturers. At the end of the day, the battle is to ensure that you have the right product at the right place at the right time. Sounds easy, but given the drivers mentioned above, its increasingly challenging to do this. But as companies move to become more demand-driven in an effort to proactively manage these drivers, they come to realize that you need to build into your processes the flexibility and responsiveness to deal with the circumstances as they unfold. While efforts to improve demand planning and supply planning provide incremental improvements, breakthroughs are being realized by those companies that figure out how to respond when things aren’t going according to plan - which is increasingly the case.

Great article here at the Financial Times talking about the need to design supply chains from the shelf back.  The article cites some great statistics on the negative brand and revenue implications of not having product on the shelf and then talks about strategies to design a supply chain from the shelf back.  Of note, the article states “designing the supply chain from the shelf back requires flexibility and responsiveness, which is at odds with the need to reduce cost.”  This is a challenge I’ve spoken about before (see here and here as examples) where companies have everyone aligned with internal metrics that drive cost reductions at the expense of external metrics that drive customer satisfaction and revenue growth.

Companies need to become more demand-driven today to deal with the increasing competition and demand volatility, the shortening product lifecycles and the elongated supply chains that have created delays and more opportunities for things to go wrong.  In the quest to become more demand-driven, you need to start designing supply chains from the customer - or shelf - back.  The first business reality you must face in doing this is realizing and embracing the reality that you can’t plan the customer - so you need to build in processes to respond quickly to the more accurate and current understanding of true demand that such initiatives will bring.

The article does a nice job of netting out three distinct recommendations for action and then explaining them in more detail.  They are: “One, make the supply chain a key part of your business strategy, focused on delivering top line growth. Two, integrate supply chain management with sales and marketing. Three, build joint business plans with your supply chain partners.”  Good advice.

New research from Aberdeen (available here) points to the growing need for improved demand management in discrete industries.  The research identifies a variety of pressures that are forcing companies to focus on improving their demand management capabilities, including: rising customer service expectations, global supply chains resulting in increased lead-times, volatile market resulting in high uncertainty in demand, need to utilize expensive assets with maximum efficiency, pressure from stockholders to reduce inventory and competition from global brands.

The research also finds that Best-in-Class companies are 2.5-times more likely than all others to have a clear owner of the consensus forecast.  In discrete industries, the sales inventory and operations planning process is gaining foothold.  The owner of the consensus forecast thus then is the same as the S&OP process owner.  This is an important trend because in the past there has been very limited attention paid towards balancing supply, demand and inventory.  The challenge is exacerbated due to multiple channels of selling products.

For too long companies purchased applications that were focused on a single issue - demand planning applications that focused strictly on gaining an accurate picture of demand and supply chain planning applications that focused on the creation of a supply plan to meet the demand plan.  While planning plays a vital long-term role, as companies seek to become more demand-driven in light of the market forces that Aberdeen identifies, they face the reality that you can’t plan the customer.  The premium then shifts to being able to respond to change as it occurs.  To do so you need to empower people with the visibility and tools to quickly evaluate the impact of change and figure out what course corrections are required to balance supply, demand and inventory.  Doing so requires an integrated view of all three - a view based on real operational data and not some model of the real world that prevents you from taking action based on an understanding of what’s possible and what the impact of your actions would be.

Demand management is increasingly the focus for companies seeking to become more demand-driven, and the defition of demand management is all about demand sensing, demand shaping and the ability to profitably respond to demand changes.

IndustryWeek has a new article talking about the significant benefits associated with delivering decision makers an integrated view of demand and supply.  Operations performance breakthroughs are enabled when people are empowered with this holistic visibility.

As the article points out with explanation and examples, for too long companies have leveraged planning systems that operate in silos.  Demand planning systems focus on developing a demand plan and supply planning systems focus on developing a supply plan.

At an operational level, down in the trenches, the issue is about constantly dealing with misalignments in demand and supply.  The examples in the article point this out with great clarity.  Decision makers no longer care what the plan was, they have to deal with today’s reality.  The only way to do this is to understand an accurate view of what true demand and the current state of supply is - at that moment.  And, more importantly, they need to be able to leverage this to understand what is possible and what the impact of any proposed course corrections would be.

You’ll find demand planning systems and supply planning systems that represent themselves as offering visibility into the “other side” (demand planning systems that promote visibility into supply).  The problem you’ll find is that they do so at such a superficial level - enough to get a check mark - that it’s useless in truly solving real problems where course corrections are needed to solve a current problem.  In a planning context where the time horizon is months or more, this modeled view of supply reality is likely sufficient in a demand planning solution.  But this is completely inadequate when it comes to solving an operational performance problem today or this week when the customer is waiting for an answer.

Demand and supply integration put into the hands of decision makers with the tools to leverage that visibility to solve real world operational problems is the key to responding to the pervasive change that is driving the organization today.