Demand-Driven Supply Chain Series – Part 1 Principles and Benefits of Demand-Driven Supply Chains

Demand-Driven Supply Chains (DDSC) are becoming the standard of operational strategies when it comes to the supply chain. Just what is a DDSC and what can it do for your supply chain? Jim Tompkins opens the new year with an introduction to the principles and benefits of DDSCs and shows us what we’ll learn over the course of this series of podcasts.

Hello, this is Jim Tompkins, President and CEO of Tompkins International and Tompkins International, and welcome to the first segment of a new and special podcast series on demand-driven supply chains. I am very pleased to introduce this series on a new and powerful operational strategy that we are seeing leading companies adopting around the world; and that we at Tompkins International are bringing to the U. S. and global markets.

In this introductory session I will define demand-driven supply chain (DDSC); explain why it is very important to all companies; and suggest who should care about it and why. I will also layout the podcast series and what we plan to be doing over the next four sessions.

“Demand-driven” is a relatively new term being put into practice as an operations strategy, as a real basis for supply chain transformation. While demand-driven itself is not new, it has mostly been a theory or a concept, except in its simplest form – to what has been sold in the past. .

But today, knowing what customers want yesterday and what customers want today is not enough. Due to the increasingly connected global economy, shorter product cycles and the instantaneous availability of information, what we are seeing is that a truly demand-driven supply chain, not a demand-driven link is reality. With today’s levels of volatility and uncertainty in forecasting, sales are simply outpacing the tools to do that effectively. Therefore we need to create a demand-driven supply chain.

The evolution to a demand-driven supply chain began in the early 1990s with Dell. It became clear that there is more to it than “do we push products to market?” or “do we pull products to sale?” We saw too that there was more to just making a product to order vs. making to stock. What we see is that there is a need to have an operational strategy that allows us to make the product when it is needed, based upon the sales, which are not only pulling the product from the prior link, but from the entire supply chain.

This has become even more challenging from back in the 1990s because now we have offshore sourcing. When you have offshore sourcing, obviously then you are dealing with longer lead times and therefore sales forecasts become more important than ever. So what we have been forced to do is manage the supply chain side than we have the demand side. What we must do is manage supply and demand and synchronize those in tune with what the customers want.

What we are seeing is more managers struggling to serve volatile markets, with unprecedented levels of complexity, while dealing with long distances from end-to-end. Many supply chain managers are experiencing operating plan disruptions even before they reach steady state. What they are dealing with there are capacities are either over or under-utilized; that product inventories are either excessive or out of stock; and that flexibility is illusive no matter what they do to prepare for it. Global supply chains, especially, are at high risk, although domestic issues are just as prevalent.

Thus, enter the “new demand-driven” strategies and operations. This takes the form of new processes, new organizations and cultures, new mindsets, and new “solution sets.” With these new components, we are seeing dramatic benefits – in financial, operational, and in organizational terms.

For producers, demand-driven supply chains can increase fill rates, improve perfect orders, reduce inventory levels and thus working capital, reduce total costs to serve, and even increase sales. For retailers, demand-driven supply chain can reduce out of stocks, lower inventory investments, increase turns, and enhance sales. All these measures can be improved at remarkable levels; often times even exceeding the high expectations we have for demand-driven supply chain.

Further, overall business performance is impacted positively, therefore increasing the value propositions to transform operations to demand-driven supply chains. As we look at the demand-driven supply chain and the impacts on strategies, processes, organizational models and the culture of companies, what we are seeing is ‘transformation.’

For example, transformations from certain traditional operations and processes to demand-driven, such as:

  • From predominant focus on assets of supply and products , to predominant focus on customers and services
  • From inventory management priorities on deployment and storage, to priorities on velocity and turns
  • From supply chain visibility within the company, to supply chain visibility across the entire supply chain

Further, at the heart of the demand-driven supply chain is the sales & operations planning process (S&OP). When S&OP is designed to operate effectively under the demand-driven supply chain banner, it can produce substantial results in many benefit categories – financial, operational, and organizational and the total value statements.

All supply chain leaders, as well as finance, marketing, merchandising, buyers, and others, should get on the path to a demand-driven supply chain. This is the most effective operational strategy I have seen in the last ten years.

Now, let me explain what we will do in the next four sessions as we dig into demand-driven supply chain:

  • The next session will be lead by Gene Tyndall, the EVP of Tompkins International on demand-driven supply chain and S&OP. Gene will describe how to get started with a demand-driven supply chain process. He is going to present the initial plan, how to customize that plan for each company, and how to really integrate demand-driven supply chain within your operational strategy, and within your S&OP Process. This will be very useful for anyone who wants to become demand-driven and achieve the dramatic benefits.
  • Next, we will have Brenda Enney, our expert on demand-driven organizational and process design, discuss the importance of getting different units aligned and integrated, as well as trading partners, in order to make demand-driven supply chain work. She will also discuss how change management comes into play when these types of changes are inevitable.
  • The fourth session will be led by one of the executives with our partner firm, One Network. He will discuss the process for implementing demand-driven technology effectively and efficiently, using case examples from highly satisfied customers. The right technology is essential for true demand-driven, and One Network has a proven process here. Further, it is cloud-based, so that time to benefit is not a factor.
  • Then, lastly, for Session #5, Gene and I will come back to discuss the path to achieve an effective demand-driven supply chain business model and operations strategy – how to present it, manage it, and how to evolve it. We will use a Q&A format to help you understand more about demand-driven supply chain and its management and execution.

Moving your company to a demand-driven supply chain business is not easy; it’s really not overly complex, if you follow the right principles and approaches. The paybacks are significant, and well worth your attention. The leaders in supply chain business today are already demand-driven. It is time that you get on this path and our podcast series is going to help you get started.

I really wish you a Happy New Year and I hope 2012 is great. We look forward to participating in this series on demand-driven supply chain, as well as other series throughout 2012. Thanks a lot, looking forward to speaking to you all real soon.