Archive for the ‘Demand management’ Category

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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.

There was an interesting article here in the Wall Street Journal (paid registration required) the other day talking about the challenges that Nintendo is having balancing supply and demand for it’s popular Wii game console.  The article points out that “… Nintendo’s problem illustrates how tough it is for companies to try to predict demand for a product…”  The article goes on to describe the delicate balance companies face in choosing to ramp up supply in the face of uncertain demand.  Doing so risks being stuck with excess and obsolete inventory whereas not doing so creates stock out situations and the potential for customers to go with a competitive offering.

 The essence of the article speaks to the unabating market forces that are creating huge challenges for brand owners and manufacturers alike.  The combination of increasingly volatile demand, shortening product lifecycles and the globalization of fulfillment networks and supply chains are creating a significant performance management challenge for companies as they struggle to proactively manage their response to constant change.  The negative consequences of not doing this well are poor customer management and satisfaction, excessive inventory and overall operations performance issues.

 As the article points out, Nintendo is constantly working to improve its demand planning capabilities, but even under the best of circumstances they will never be able to completely predict their business.  This is the case for many companies today.  Given this reality, it’s important to complement demand planning and supply chain planning efforts with Response Management strategies that empower people to respond to the unexpected - to rapidly make the right tradeoffs and course corrections needed to deal with the uncertainty that unfolds every day.

There’s a lot of discussion today about improving forecast accuracy. It makes sense since improvements here will yield direct improvements in business performance. There tends to be less discussion about improving demand sensing (although AMR Research promotes this quite regularly) and ensuring appropriate supply-side flexibility and responsiveness to deal with true demand that is quite often not what was forecasted.

Unless your business has very predictable demand (this increasingly seems to be the minority business), then your best efforts at forecasting will never produce a perfect forecast. The question then becomes what are you going to do about the portion of your business that you can’t accurately forecast? This is where demand sensing and supply-side flexibility and responsiveness are critical. As companies seek to become more demand-driven, they need to acknowledge the fact that you just can’t plan the customer. You need to invest in tools and methods to ensure that you can respond as realities unfold.

The biggest concern here is that I continue to hear of too many cases where companies view these as either/or decisions - usually starting with improving forecast accuracy since that seems to be the hot topic today. While this is a worthy investment, in many businesses its actually more important to excel when the forecast isn’t accurate to ensure that you can beat the competition by providing better customer service and a more profitable demand response in response to the unexpected.

There’s a new article at Supply Chain Digest here talking technologies to support the S&OP process. The article goes through the traditional mix of demand management, supply management and inventory management applications.

A couple of observations. One of the challenges I think organizations face in today’s rapidly changing marketplace is tied to the legacy and heritage of the traditional planning solutions. Traditional demand planning and supply planning solutions are very siloed in nature - focusing on the user communities, information and decisions that need to be made in that particular problem domain. While they may foster collaboration, it is only within the user communities in that domain (for example, collaboration in creating the forecast), and not across demand, supply and product simultaneously. There are multiple problems with this very sequential, siloed approach in today’s climate.

S&OP today requires rapid scenario analysis and cross functional collaboration. There are so many changes going on in demand, supply and product, that failure to integrate these into a holistic process and decisions that weigh all of the issues simultaneously leaves a lot to chance. And, because of the pace of change, there’s an increasing need to move from a purely planning centric view of S&OP to a process that is more operationally aligned - shortening the window to ensure that the pace of change is being factored into the decision making processes.

As market leaders push to become more demand-driven, one of the first challenges they have to deal with is the reality that you can’t plan your customer. The S&OP and all processes need to be oriented around this reality to ensure that the company is positioned to lead in a demand-driven market.

There’s a good post over at Supplychainer.com asking the question “where should demand management reside?” (see the post here).

I posted a comment and have included it below as well.

** My comment **

This is an interesting question. First, my experience says that the reality is all over the map - I’ve seen it reside in a number of organizations from sales to operations to finance.

One of the biggest challenges I see in an organization is that for too long the responsibilities for demand, supply and product have been organizationally separated and, thus, it further promotes the “silo” mentality of dealing with these issues. Someone creates the demand plan, throws it over the wall to someone else to create the supply plan, etc. The integration of product into this equation is usually the most troublesome and least integrated.

With things changing so fast, the need to integrate these three functions more tightly has never been more critical to the success of the business. Each process along requires a lot of collaboration to derive the right demand plan, for example. Then there’s the critical need for cross-functional collaboration - ensuring that the demand planning participants are actively collaborating with the supply planning and product planning participants.

The historical approach has been to focus on planning the business. Today’s reality forces you to acknowledge that you must be more demand-driven and in doing so you have to realize that you can’t plan the customer. The key to thriving in this environment is through more active organizational integration and by empowering people with the visibility and tools they need to both collaborate and rapidly respond to change.

There’s an article over at EDN here asking what impact the holiday season will have on the electronics supply chain. The article starts by saying that “consumers still hold the keys to the kingdom” - which is precisely why this will be such a challenging season from a demand management and supply chain management perspective.

** My comment **

I think the only constant this year is going to be change. The reality is, as you stated, that nobody fully knows. My expectation is that sales will be strong because consumer appetite for electronics continues to grow across a variety of products.

For manufacturers, the key will be flexibility and responsiveness. The holiday season represents a huge demand management and supply chain management challenge for all manufacturers. It’s become a reality that nobody can accurately plan out these events.

Manufacturers can’t afford to miss out on the sales this season represents. With the challenges associated with trying to accurately forecast true demand, the key will be those that can respond quickest and most effectively to demand volatility and supply hiccups.

If you’re like most companies, the pace of product innovation has been accelerating. I’ve talked to many companies that indicate that it now takes longer to market and sell a product than it does to develop it.

In many companies, new product introductions represent the single biggest demand management challenge they face. Given that forecasts can often include 70-80% errors for new product introductions the supply chain management challenges are significant. Improving forecast accuracy is certainly one objective.

But will forecasting ever be perfect? It’s doubtful. Realizing this doesn’t mean you’re failing, it means you have an opportunity to proactively do something about it. Ensuring that your organization can quickly sense true demand and quickly respond to changing demand and supply situations is the key to being able to capitalizing on the opportunities that new products represent.

There are critical timing decisions to be made about the proper effectivity date - a date that balances meeting demand with the need to avoid excess and obsolete inventory problems. There is also a critical need to be able to rapidly align supply with the true demand as it materializes in the early stages of product ramp up. None of these things can be perfectly forecast.

Developing a competency in responding to change is essential for companies to deal with the realities that exist in supply chain management today.