Why haven't Companies Embraced the Concept of Demand-Driven?
Demand-driven value networks have evolved from a traditional supply-driven conceptual design and, as a result of the global marketplace, have become more sophisticated by synchronizing demand and supply. Orchestrating demand at the mature stage of the demand-driven transformation process allows companies to better balance growth and efficiency, costs, and customer service, and demand fluctuations while reducing working capital. When demand-driven maturity is achieved, there is not only better balance but also greater nimbleness across the supply chain. Based on research conducted since the 2009 global economic meltdown, those companies that have become demand-driven were able to sense market changes five times faster and align their value networks three times quicker to changes in demand.1 This quicker alignment enables better customer service with substantially less inventory, waste and working capital. If this is true, then, why aren’t more companies demand driven?
The simple answer is implementation challenges associated with change management issues. In some cases, a complete corporate cultural change is required, which can be enormous from a process, data, analytics, and technology standpoint. Companies that attempt to navigate a demand-driven transformation process must tackle corporate cultural changes head-on. The most important changes are:
References
1. Lora Cecere, “What Happened to the Concept of Demand-Driven?,” Supply Chain Shaman(www.supplychainshaman.com), January 12, 2011.
2. Lora Cecere and Charles Chase, Bricks Matter: The Role of Supply Chains in Building Market-Driven Differentiation (Hoboken, NJ: John Wiley & Sons, 2012), 109–146.
3. Charles W. Chase, Demand-Driven Forecasting: A Structured Approach to Forecasting, 2nd Edition (Hoboken, NJ: John Wiley & Sons, 2013), 71-73.
ABOUT THE AUTHOR
As chief industry consultant, Charles Chase is the principal solutions architect and thought leader for delivering demand planning & forecasting solutions to improve SAS customers supply chain efficiencies. Chase has more than 20 years of experience in the consumer packaged goods industry, and is an expert in sales forecasting, market response modeling, econometrics and supply chain management. Prior to working as Chief Industry Consultant Chase led the strategic marketing activities in support of the launch of SAS Forecast Server, which won the “Trend-Setting Product of the Year” award for 2005 by KM World magazine. Chase launched SAS Demand-Driven Planning & Optimization Solution in 2008, which is now used by Nestle USA Direct Store Delivery (DSD), Escapo, RWE Pulska, and over 40 other large corporations globally. He has also been involved in the re-engineering, design, and implementation of three forecasting/marketing intelligence process/systems. His employment history includes the MENNEN Company, Johnson & Johnson, Consumer Products Inc., Reckitt & Colman, Inc., the Polaroid Corporation, Coca Cola, Wyeth-Ayerst Pharmaceuticals, and Heineken USA.
The simple answer is implementation challenges associated with change management issues. In some cases, a complete corporate cultural change is required, which can be enormous from a process, data, analytics, and technology standpoint. Companies that attempt to navigate a demand-driven transformation process must tackle corporate cultural changes head-on. The most important changes are:
- Incentives: The role of the commercial teams. As long as sales is incented only for volume sold into the retail channel and marketing only for market share, companies will never become demand-driven. To make the transition to demand-driven, companies must focus on profitable sales growth through the retail channel.
- Traditional view of supply chain excellence. For demand-driven initiatives to succeed, they must extend from the customer’s customer to the supplier’s supplier. In 92 percent of companies surveyed in Fall 2010, supply chain models encompassed only deliver and make.2 Customer and supplier initiatives usually are managed in separate initiatives largely driven by cost.
- Leadership. The concepts of demand latency, demand sensing, demand shaping, demand translation, and demand orchestration are not widely understood. As a result, they are not included in the definition of corporate strategy.
- Focus: Inside out, not outside in. Process focus is from the inside of the organization out, as opposed from the outside (market-driven) back. In demand-driven processes, the design of the processes is from the market back, based on sensing and shaping future demand.
- Vertical rewards versus horizontal processes. In supply-centric organizations, the supply chain is incented based on cost reduction, procurement is incented based on the lowest purchased cost, distribution/logistics is rewarded for on-time shipments with the lowest costs, sales is rewarded for sell-in of volume into the retail channel, and marketing is rewarded for market share. These incentives cannot be aligned to maximize true value.
- Focus on transactions not relationships. Today, the connecting processes of the enterprise—selling and purchasing—are focused on transactional efficiency. As a result, the greater value that can happen through relationships—acceleration of time to market through innovation, breakthrough thinking in sustainability, and sharing of demand data—never materializes.
- Process. The implementation requires a focus on the processes: revenue management, new product launch, channel data management, and use of demand insights.
- Network design. The design of the network is an essential element to actualizing this strategy. Demand-driven companies have deep investments in supply chain modeling software—optimization and simulation—and actively model scenarios for the network reflecting changes in both demand and supply.
- Demand Sensing. These companies also have a control tower to actively sense network changes and adapt the network for changes in market demand, constraints, and opportunities. This overarching group crosses source, make, deliver, and sell to work hand-in-hand with customer service to maximize the use of resources while minimizing costs and maximizing profitability.
References
1. Lora Cecere, “What Happened to the Concept of Demand-Driven?,” Supply Chain Shaman(www.supplychainshaman.com), January 12, 2011.
2. Lora Cecere and Charles Chase, Bricks Matter: The Role of Supply Chains in Building Market-Driven Differentiation (Hoboken, NJ: John Wiley & Sons, 2012), 109–146.
3. Charles W. Chase, Demand-Driven Forecasting: A Structured Approach to Forecasting, 2nd Edition (Hoboken, NJ: John Wiley & Sons, 2013), 71-73.
ABOUT THE AUTHOR
As chief industry consultant, Charles Chase is the principal solutions architect and thought leader for delivering demand planning & forecasting solutions to improve SAS customers supply chain efficiencies. Chase has more than 20 years of experience in the consumer packaged goods industry, and is an expert in sales forecasting, market response modeling, econometrics and supply chain management. Prior to working as Chief Industry Consultant Chase led the strategic marketing activities in support of the launch of SAS Forecast Server, which won the “Trend-Setting Product of the Year” award for 2005 by KM World magazine. Chase launched SAS Demand-Driven Planning & Optimization Solution in 2008, which is now used by Nestle USA Direct Store Delivery (DSD), Escapo, RWE Pulska, and over 40 other large corporations globally. He has also been involved in the re-engineering, design, and implementation of three forecasting/marketing intelligence process/systems. His employment history includes the MENNEN Company, Johnson & Johnson, Consumer Products Inc., Reckitt & Colman, Inc., the Polaroid Corporation, Coca Cola, Wyeth-Ayerst Pharmaceuticals, and Heineken USA.