AMR Research strongly believes that demand-driven supply network (DDSN) excellence translates to overall excellence in business performance; the facts are irrefutable.

The DDSN is a system of technologies and processes that senses and reacts to real-time demand across a network of customers, suppliers, and employers. We have spent the past three years benchmarking supply chain performance across a number of industries. The research yields some telling observations about the power and potential of being demand driven:

• Demand forecast accuracy, perfect-order fulfillment (complete, accurate, and on-time shipments), supply chain cost, and cash-to-cash cycle time are the four most critical metrics a company can use to get a quick, balanced snapshot of its supply chain performance. The takeaway: With these four metrics, you can assess how clear your view of demand is, identify where you're making trade-offs between cost and service, and gauge how well you're managing cash flow.
• Demand forecast accuracy creates a high level of customer responsiveness and cuts cost through the supply chain. The takeaway: Companies that are best-in-class at demand forecasting average 15 percent less inventory, 17 percent higher perfect-order fulfillment, and 35 percent shorter cash-to-cash cycle times—while having a tenth of the stockouts of their peers.
• Demand forecast accuracy correlates with perfect-order fulfillment. A 1-percentage point improvement in demand forecast accuracy can yield a 2-percentage point improvement in perfect-order fulfillment. The takeaway: Even a minor improvement in a company's demand visibility can have a dramatic effect on its customer responsiveness.

While these results are certainly impressive on an individual company basis, the value of the DDSN on a macroeconomic basis is positively enormous in terms of margins and market valuation. We calculated this impact based on two comprehensive studies conducted over the past few years.

In 2000, an AMR Research report examined the potential new operating margins available to the U.S. manufacturing economy from enhanced Internet connectivity in the supply chain. The study broke all manufacturing industries down to their four-digit North American Industry Classification System (NAICS) code according to their position in the supply chain—fixed capital managers (sources), tier-n manufacturers, and original equipment manufacturers (OEMs). Then, by examining the supply-demand balancing efficiency across the chain, we were able to estimate a range of incremental gains in operating margin. The high end of this range showed $465 billion in new operating margin annually for U.S. manufacturing.

In the latter part of 2004, we recalculated the macroeconomic impact. We used Dun & Bradstreet data for 2003 and updated the margin impact estimates with benchmarking and/or field-based figures that reflected known gaps between best-in-class, median, and laggard performers. Even when excluding the still-unproven revenue effects of some key customer-facing applications, the analysis shows a whopping $488 million in incremental operating margin available to the U.S. manufacturing industry through enhanced demand-driven Internet connectivity, or what we now call the DDSN. (Exhibit 1 summarizes the impact by manufacturing sector.) Interestingly, that $488 billion conservatively translated into market capitalization is roughly the same amount lost after the dot-com bust. In essence, this value is now being redistributed from dot-coms to real industry.

The market leaders will capture their share of this huge opportunity by differentiating themselves from the laggards. Already, these leaders have moved away from the traditional linear, push supply chain to embrace the DDSN—a model that drives growth and renewal through the constant interplay of the supply, demand, and product domains of business activity. Using this DDSN model, we have selected the Top 25 companies that are setting the pace in supply chain excellence. (The listing is shown in Exhibit 2. For more on the selection criteria used and AMR's commentary on each company, visit the "Featured Research" section of the AMR Research Web site, www.amrresearch.com.)

As these top companies have demonstrated, supply chain leadership means more than just efficiency. Growth and the ability to create profits depend on a level of agility available only to those that operate with demand-driven supply networks. Getting on track with a DDSN starts with measuring operational performance and reporting that performance to the market.

Following the leaders is easy, provided you know what they are doing. AMR Research's supply chain Top 25 provides a starting point for understanding how these companies have begun to operate with the DDSN model in mind.

Now, as long-delayed projects make it back to the table, you must choose between two options: (1) stay away from the bleeding edge, hoping that the competitors don't gain on you, or (2) move now while there is still a window of relative prosperity to invest for future growth. The leaders have taken the second option by developing demand-driven capabilities that are enabling them to capture the huge opportunity that is out there.