Supply chains are getting good business press lately. On a daily basis, I come across quotes like the one in a recent BusinessWeek article stating, “The ones [companies] that manage supply chains best will come out ahead as the recession eases.” Is the supply chain finally being recognized by the mainstream as a strategic capability of a company, rather than merely a function to execute? And is there agreement that it’s not just a cost center, it can be a revenue generator too?
In this particular article, it quotes the Chief Executive of Nokia as saying “We would have sold more phones in the third quarter without the capacity constraints.” Because production was lowered dramatically during the recession, some companies – in consumer electronics in particular – are now seeing spot shortages due to unexpected demand increases. As the article points out, “ The coming months could be tricky…Manufactures must gauge demand accurately among economic uncertainty.” Therein lies the rub: How to balance the opportunities to capture all demand while mitigating against the risks of excess and/or obsolete inventories.
Demand planning is going to be key without a doubt, but equally important will be demand responsiveness – acting quickly to the unexpected – and overall supply chain agility. Even before the recession, companies struggled with demand volatility because of increased competition, decreasing customer loyalty, constant new product introductions etc. But in today’s grave economic climate with major demand swings and declining spending overall, planning for future demand based on historical data is now virtually impossible. With inventories at an all time low, retailers and suppliers will need to respond rapidly to actual demand. Companies need the ability to detect demand trends early so that they can ramp up production accordingly in order to avoid the situation Nokia described in the article.
Solving the rapid response challenge will require:
- accurate and timely demand sensing to quickly understand demand shifts
- collaboration: both with customers to gain consensus on true demand, and with internal colleagues and supply partners to develop and analyze resolution alternatives; and
- decision support that drives profitable responses through shaping demand and allocating finished goods supply as appropriate
I believe achieving excellence in responding to changing customer demands has become the number one challenge facing enterprises today and can represent the largest opportunity for companies to increase customer service, enhance margins and attain more predictable revenue across the entire value chain.