Archive for the ‘Demand management’ Category

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

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.

AMR has just posted information on how frequently companies execute their Sales and Operations Planning (S&OP) processes.

AMR has also talked about the fact that to execute this process correctly, companies need to invest in tools that provide rapid scenario analysis and foster collaboration across all of the groups involved. The ability to quickly understand the alignment issues between demand and supply in the context of collaborative scenarios is key to enabling the compromises inherent in this process.

Equally important is the need to ensure that the company is well armed to deal with the exceptions that occur daily and outside of this planning process. With the pace of change accelerating in all dimensions, the ability to respond to the unexpected and ensure continuous alignment between demand and supply is essential. Companies need to seek a profitable demand response in a timely fashion to proactively deal with these events.