Rubenstein Justman Management Consultants

Demand Signals: Broadcast or Listen?

If you have looked at the pictorial representation of a modern supply chains, you will notice how, in their unavoidable complexity, supply chains are taking on the physical appearance of a neural network. The supply chains themselves are being judged on how they satisfy demand. How successfully demand signals are generated and propogated through the supply chain is now considered a critical aspect of most companies’ operations.

Forecasts, based on historical sales, used to be the preferred way of transmitting demand information down the supply chain. This approach worked as long as there was a constancy of demand in large quantities. And this was true of early adapters of supply chains like automobile and appliance manufacturers. Even today, the everyday-low-price approach still works for made to stock supply chains with constant consumption patterns.

Consumption driven planning, on the other hand, lent itself perfectly to production in the growing consumer markets. Such supply chains had short lead times, repetitive demand, and small order quantities. We are all aware of the success of Dell and Amazon. There is no denying that the internet was an enhancer but it was the nimbleness of the supply chains when reacting to demand that was a big reason for their success. As long as production and distribution capacity were available the demand signals coming from the customer were recognized and fulfilled.

The Hybrid
Along came even more choice. Consumers wanted computers in the cars and others wanted to race cars on their computers. Companies were becoming cognizant of the sweet spot between making to stock and making to order. To complicate the picture further, there was no easily identifiable decoupling point in the supply chain to separate the activities based on forecasts from the activities based on the customer orders. Companies were forced to do their homework and arrive at the demand planning model that worked best for them.

A leading auto manufacturer in the US gravitated to a pull model to by allowing dealers to review part level stocking recommendations based on their needs. By further facilitating automatic order generation and a generous return policy for those dealers who participated in the new program, the supply chain was more finely tuned to the dealer-customer interactions.

The Hub
The evolution of the hybrid planning model continues today. This means the deployment of software that helps integration and sharing of information. Today’s supply chain solutions attempt to play the role of a virtual hub of information. Suppliers share data on components, production plans share their capacity information, distribution centers share the space and transportation constraints, and sales and retailers feed their consumption information. If only it was as easy as wash, rinse, and repeat. This is why the cost of Demand planning and supply planning solutions cost is linked to how accurate they are able to match supply and demand.

A leading contract manufacturer of phone chargers decided to set up a portal for suppliers to submit quotes. Because the company continually introduces new products in a fast evolving consumer market, the portal was constantly in use to obtain supplies at the best cost and most reliable service level agreements. No longer was there a need for roundtrips between suppliers and corporate regarding quotes and schedules.

Due to the blurring of lines between purely consumption or forecast driven planning companies must first analyze their supply chain networks, identify the strengths and weaknesses, and select demand planning software that will exploit the supply chain to its fullest capacity without losing sight of the customers’ needs.

Leading vendors in the demand plannning space include:
Demand Works

At RJMC, we have been engaged in helping companies assess their ERP needs for over twenty five years. Besides core ERP requirements, we also work with companies to help them stay competitive by aiding them in the selection of Demand Planning, Supply Chain Planning, Inventory Optimization, and Trade Promotion solutions.

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