Posts Tagged ‘Demand management’

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Last month, I posed the question “Can anyone accurately predict demand right now?” and referenced an article about the Nintendo Wii.  Nintendo was betting on growing holiday demand and increased supply by 50% compared to last year.  Others were talking declining demand and inventory gluts because of the economic situation.  Guess what – neither predicted the right demand (see “Nintendo Wii repeats gaming history again: defeats supply chain critics“).  Certainly there is no glut problem, and in fact looks like Nintendo underestimated again.  Who would have guessed?  And therein lies the problem….

I bought my first ‘enthusiast-level’ digital SLR last week. Hardly interesting, I know. You’re probably thinking “good for you, John!”, and reaching for your mouse to seek more quenching content. What I do believe to be interesting is how I came to make my selection, how I was able to get the best deal possible, and how those methods might be affecting the brand owner’s supply chain, and how it might alter how they look at demand planning and demand management in general. I’ll tell you the story, and then maybe you can comment on where this will take brand owners in the future.

I’ll start by killing the suspense – I bought a Nikon (pronounced knee-kon, for those of you who have never had the misfortune of mispronouncing their company name while visiting their headquarters in Japan). Specifically, it is a Nikon D90 with an 18-200mm f/3.5-5.6G IF-ED VR lens and the SB-900 Speedlight. I just had to add the grip attachment to give it that “photo-journalist”  look-and-feel (a guy thing? Maybe). Anyway, this decision started with a conversation with one of my close friends, Andrew, who has spend 17+ years as a serious hobbyist in photography. As you would expect, people tend to turn to their community of trusted friends and family for advise, and generally give high value to what they have to say. With Andrew, I learned more in 1 hour then I ever thought possible – starting with what questions I should be asking myself, to what products and technologies existed today. The most valuable bit of information I got from him, however, was a list of “strangers” that I should trust, and where I might find them.

It didn’t take me long to have mouse-in-hand, fingers-on-keys, and I would find myself engrossed in the opinions of Thom Hogan, and Gordon Laing, editor of Camera Labs. It didn’t stop there – I went on to read scads of opinions posted by hundreds of strangers, each equally passionate about their points of view. There were over 25,000 people in the dvinfo.net community to leverage; then the massive photo.net which boasts over 3,000 posts per day! Indeed, there is a wealth of detail, opinion, and what I perceive to be unbiased reviews to chose from – all well outside the control of the brand-owners themselves. I knew well in advance what I would like, and what compromises I would live with before choosing this product, and I had gotten there having never visited the Nikon website, or leaving my home office to visit a local store! Of course, manufacturers are providing their goods to experts like Thom and Gordon in the hopes they give their products a favourable review (I would want to believe without incentives to do so). They would have far less (if any) influence on the contributors of the hundreds of other massive communities eager to publish and defend their opinions in public forum.

Before leaving for “the store” to buy one, I was able to find the lowest price on the internet, giving me some indicator of “how low can they go” while leaving enough margin for the house, and enough for the maker. Without disclosing the end purchase price, suffice it to say that I am very pleased with what I paid, and wildly happy with the unit itself.

You might look at this story and think to yourself that marketing and branding is what is most affected by my method of buying a camera. I can’t help but wonder how my buying habits will change a brand owner’s demand planning process. I would posture that planning will become less relevant in the future, and responding to plan variance will become more so. Agree? Disagree?

Who says supply chain management can’t impact top-line performance?  Just a couple of weeks ago I wrote a post entitled “Can anyone accurately predict demand right now?“  Now, today’s Wall Street Journal is running an article entitled “Better scratch that Kindle off your list.” (subscription required).

According to the story, “For the second holiday shopping season in a row, Amazon.com Inc.’s Kindle e-book reader is out of stock, and more of the devices won’t be available until mid-February, at the earliest.”  Ouch!

Ironically, Amazon thought it had plenty in stock until Oprah endorsed the e-reader on her show.

While not every business has to worry about Oprah messing with their demand planning process, the reality is that it’s become exceptionally hard to accurately forecast demand today.  There are several things you can do, but two most notably are to focus on improving your demand planning/forecasting process or focus on improving your demand management processes (identifying misalignments and balancing demand and supply).  The reality is that you should do both, but the sad truth is too many companies focus predominantly or solely on the former.  A better approach would be to acknowledge the high degree of uncertainly in accurately predicting demand and making sure that you are best-in-class at dealing with demand uncertainty.  Excellence in demand management ensures you are a market leader whether you get your forecast right (which of course is the goal) or not (which of course is the reality).

Given the demand uncertainty in today’s market, there’s no better time than now to be establishing excellence in demand management.

There’s a good article in Teradata Magazine entitled “Assembling the data-driven supply chain.”  Among other good insights, the article features a case study on Cisco under a section entitled Consensus forecasts blend analytics and insiders’ insight. The article discusses how Cisco is leveraging powerful analytics to create better forecasts.  The new process has given the Cisco supply chain organization a complete, unit-level demand forecast for a two-year planning horizon, a more transparent work process and noticeable reductions in forecast error and bias.

This process is then married to a very robust demand management process that facilitates rapid demand-supply balancing.  In an environment like Cisco, where change is a constant, this is essential to keeping alignment - which ultimately drives higher customer satisfaction while mitigating supply chain costs.

The importance of the demand management process - of rapidly aligning demand and supply - is of increasing importance to every company we speak to.  Especially in this economic environment where volatility is so high and demand predictability is so low, the ability to rapidly align demand and supply is the key to success right now.

We’re seeing a growing emphasis in these capabilities both in the short and medium-term time horizons as companies struggle to deal with the unprecedented levels of uncertainty in their businesses.  As the article notes, the key to rapid response in these situations is to blend analytics and insider insight.  Analytics provide the sophisticated analysis of the current situation and an undersanding of the inter-relationships between demand and supply.  Analytics can instantly show you what an impact of a change in demand can have on supply, up and down the supply chain.  Insider insight is equally important, as most of the time misalignments require a tradeoff to be made.  Your people have the needed insight to know what real tolerance exists and can factor in the appropriate insights into the decision making process.  The combination of analytics and human insight are uniquely able to help you quickly realize the right course corrections to make for the business.

A new article at IndustryWeek discusses the top 10 demand planning strategies.  It’s a good article with several good recommendations.  I posted a comment at the site and have included it here as well.

** My comment **

I thought the article included several good suggestions.  I would add echo the comments that statistical forecasting in a world of constant change truly does represent just a starting point.  As noted by the author, collaboration with customers is essential to understanding their changing demand requirements and having a chance to meet them.

Beyond demand planning, demand management practices that align demand and supply, both inside and outside the sales and operations planning (S&OP) process, have become increasingly critical to supply chain management success.  Demand planning and supply planning can no longer be sequential, disconnected processes.  The ability to do integrated and collaborative demand-supply planning, to monitor the health of the business and develop rapid and effective response to change is the key to success in light of the volatility facing most businesses today.

Our very own John Westerveld has just had an article published at Supply & Demand Chain Executive.  You can find the article, entitled “The growing importance of supply chain analytics”, here.

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?

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.