Demand-Driven Supply Chain Management – A summary
16th January 2017 | Simon Eagle
Simon Eagle, author of Demand-Driven Supply Chain Management, discusses how to transform the performance of supply chains in this summary of demand-driven supply chain management
Today, the vast majority of fast-moving consumer goods, life science and other manufacturing and distribution supply chains are being managed using a wholly ineffective process through very expensive enterprise requirements planning/materials requirements planning or advanced planning software systems. That process uses forecasts of future demand to tell suppliers and factories what, when and how much to supply, make and move but, because the forecasts are always wrong (for most products the forecasts are more than 50 per cent wrong) the wrong quantities are sourced, made and shipped to the wrong places. Stock levels are thus very poorly balanced and customers do not get an optimal service. To try and avoid such problems, these companies spend an inordinate amount of time expediting materials and products through their factories and supply chain, which is expensive, wastes vast amounts of capacity, causes stocks to be far higher than needed and, very often, fails to solve the service problem – and if it does, the cost and cash flow implications are enormous.
There is, however, an alternative called Demand-Driven Supply Chain Management (SCM) which, when replacing the forecast-driven method, allows companies to achieve their planned service levels from, unbelievably, up to half the average level of stock with no expediting, no wasted capacity and with no requirement for highly accurate forecasts.
Demand-Driven SCM simply involves positioning the right quantities of stock where they are needed up and down the supply chain and topping them up, as they are consumed, in a stable and repetitive sequence. In this way materials and products are pulled through the supply chain using a simple ‘make to replace’ and ‘ship to replace’ mechanism in line with actual demand without any need for expensive and disruptive intervention and expediting. The great thing about Demand-Driven SCM is that it works with any demand pattern, even those with lots of promotional activity - bar those exceptional and highly extreme events that, instead, can be anticipated and managed with an advance stock build.
Large and complex companies still need traditional transaction systems to manage their supply chains but, aided by a new wave of ‘cloud’ IT software, Demand-Driven SCM is now beginning to be adopted by a rapidly increasing number of well-known companies that have recognized – and experienced – the transformational impact that this remarkably simple way of working delivers.
About the Author: Simon Eagle is a senior supply chain planning and strategy consultant with over 20 years of international industry experience and significant expertise in S&OP and demand-driven supply chain management. He works with manufacturing and distribution companies that wish to make a transformational improvement in their E2E operations and supply chain performance and does so through helping them to adopt 'demand-driven' planning and execution.