The 2008 Supply Chain: Demand-Driven Reality
By Roddy Martin -- Supply Chain Management Review, 1/1/2008
- Demand Driven - Much More Than a Consumer Driven Strategy
- Supply Chain Synonymous with Operations Strategy
- What to Expect in 2008
- Where to Start, or Increase, Momentum
2007 ushered in new supply chain thinking across all manufacturing styles and verticals. Although the concept of “pull-driven” was not new in supply chain circles, 2006-2007 saw the start of actual execution and change leadership in demand-driven supply chain strategies and projects.
In many industries, especially consumer goods and high-tech consumer electronics, supply chain capability has been elevated beyond a focus on transportation, logistics and distribution activities to a strategic growth opportunity for the business.
In a few cases, supply chain and IT leadership has even been vested in the same person and role—very different thinking from the past.
This new supply chain thinking boiled down to three “sticky” concepts:
- Transforming forecast-based, push-driven supply chains into demand-driven networks.
- “Outside-in” translation of priorities from the point of product consumption and usage back into operations and “inside-out” execution.
- Transforming supply chains into end-to-end, process-orientated value networks that differentiate competitors through joint value creation activities across the network.
Demand Driven—Much More Than a Consumer Driven Strategy
Demand-driven concepts are most logically suited to fast moving, shelf-sold, consumer-oriented product manufacturers such as consumer goods because of their lower margin and product velocity characteristics. Leaders such as P&G were the catalysts to using operations strategy initiatives such as the Consumer Driven Supply Network or CDSN to drive business growth on a global scale.
These same sticky concepts also apply to other product and manufacturing styles. A few illustrative examples:
- Life science companies launch new products in global markets to ensure the right product, dosages, and package availability at the right locations. This requires “outside-in” market understanding.
- Industrial manufacturers must translate traditionally strong cost containment and supply management capabilities into higher margin and growth offerings to customers. This requires demand understanding and flexibility through product platforms.
- High-tech and electronics manufacturers with short product life cycles must use market and consumer insights to source make and build products that drive and shape demand.
All of these examples are supply-chain-founded and aligned to ensure continuous business growth in each respective industry. 2008 will see increased momentum in demand-driven thinking and understanding as manufacturers explore their own supply chain transformation priorities and look for executive leadership team sponsorship.
Supply Chain Synonymous with Operations Strategy
In the past, manufacturers have been forced to deal with a bevy of strategically critical challenges in the supply chain.The latest of these challenges has been the impact of fuel and raw materials on the costs of doing business and the increasing challenge of sustainability. These challenges don’t disappear, and cost controls and productivity remain important foundations for supply chain and business performance.
Strategic concepts such as demand-driven, outside-in, joint value creation, and value networks provide us new avenues that allow business to holistically leverage supply chain capabilities and innovatively work toward solving bigger business issues such as global operations and reduced complexity.
The key messages in this model are:
- Recognizing that product, supply, and demand functions and processes in the business must be aligned and can no longer operate separately as silos.
- The confluence of product, supply, and demand-side business strategies and priorities across business surfaces core initiatives at the intersections; for example, sales and operations planning; new product development and introduction, and demand management
What to Expect In 2008
In 2008, manufacturers across verticals will increase their focus on prioritized core initiatives based on readiness and urgency. Initiative planning and governance is a critical success factor. Initiative overload as a result of poor coordination and siloed priorities is a dangerous symptom of poor execution of supply chain transformation and change leadership.
The list and context of the projects listed below is the crux of supply chain transformation. The number of projects that you have the capacity to address will largely depend on the stage of maturity; the strength of change leadership, and the burning business platform driving change.
The set of prioritized initiatives for supply chain transformation for 2008 are:
- Translating the business strategy (e.g. a growth goal) into the core pillars and a set of prioritized projects and initiatives that constitute supply chain strategy. Examples of these supply chain strategy pillars are; aligned demand relationships, enabling product platforms, supply responsiveness, organizational structure, and supply relationships.
- The creation of a cross functional, top-down change leadership team to lead the transformation of the traditional supply chain into a demand-driven value network.
- Translation of strategic business priorities such as reduced risk and complexity, and sustainability into the operations strategy.
- Development of measurement strategies and benchmarks across the global business to ensure interdependent performance management across the end-to-end value network, rather than enforcing buckets of measures across the business silos that drive independent silo and function efficiency at the expense of the overall business performance.
- The institutionalizing of demand sensing, demand insight analyses, and demand translation capabilities into demand response, demand shaping, and joint value creation activities across the end-to-end value network.
- Revitalizing Sales and Operations Planning (S&OP) from a supply and demand balancing focus to an executive-overseen , cross-functional collaboration process that enables outside-in value-based tradeoff decisions across market opportunities assessments, business resource and finance allocation, and capacity management.
Where to Start, or Increase Momentum
To those looking from the outside in; the energy to start or increase momentum is all about finding the burning business platform and pragmatically educating the business leadership team in the opportunities that exist.
The trick is to keep the concept simple, sticky and compelling to the business.
A few ideas:
- “New” supply chain thinking doesn’t mean throwing out cost and productivity priorities. These are important foundations to build the “demand driven” strategy.
- Create a scenario around a burning business platform or compelling business need such as launching a new product or merger and acquisition.
- Encourage outside-in and value-network thinking to address common business problems.
- Find a guiding coalition of change leaders that recognize that end to end performance management of the business is the key to growth and opportunities.
- Build a demand-driven culture across the business by using actual demand data to influence and drive decisions.
Last but not least consider the following. Just by raising the visibility of performance across the end-to-end value network (whether that means visibility of compliance, inventory, cycle times, or right first time product supply) supply chain visibility represents a good start.
One manufacturer focused on raising the visibility of critical “outside” events such as product launches, supply shortfalls, campaigns, and inventory status across the end to end internal business. This alone made a significant contribution to teamwork and collaboration across the value network. A good place to assess yourself and start!
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