Do You Have A Lean Demand-Driven Supply Chain (LDDSC)?
Definition of LDDSC
What do I mean by LDDSC? The term “demand-drive” is used here to denote a concept
commonly referred to as supply chain management – that is, the relationship between you and
your suppliers and between your own inventory stocking locations as well - but with a different
twist. It incorporates a special emphasis on the utilization of lean “end customer pull”; bridging
the gap between what customers actually buy (the demand signals) and supply chain
management, while delivering the best value to the customer at the least cost to the demand
chain as a whole – driving out waste (cost).
The main thrust is that your supply chain network is driven by customer demand (end user, or
your stocking locations) and provides an opportunity to share more information and to
collaborate with others in the supply chain, externally and internally.
Collaborate?
I know…an often used term and just as often poorly executed because “alignment of interests” –
the real win-win - somehow gets left out of the discussion. Individual companies, on both the
demand and supply side, have historically taken the approach of “taking care of their own
affairs” - to maximize their own interests and guard their own data. In short, collaborating and
sharing was not something to which business owners took an immediate liking. Yet, many larger
companies and some smaller ones have successfully begun to adopt collaboration efforts such as
“point-of-sale” data sharing and “vendor managed inventory” programs as a strategic direction to
provide greater visibility into demand…so that supply can be aligned. It’s not something that can
be done in isolation within disconnected functional silos.
The Reality for SMB’s
I often find that there are some common misconceptions that surround the reality of being
demand-driven.
66 Derbyshire, Derby, CT 06418
203-732-0603
www.mcaassociates.com
1
First of all though, one of the ironies is that despite all the information that is available regarding
how to evolve in becoming “demand-driven”, information for SMB’s (small and medium size
businesses) is relatively sparse. One might think that SMB’s are really different from their larger
counterparts. When was the last time you heard, saw or read anything about this subject in your
industry trade publication, on your industry associations’ website, from your buying group, or at
annual meetings and trade shows? No one seems to want to discuss it as a strategic competitive
direction. Rather they prefer to focus just on the traditional “striving for lowered costs”. Some
reasons, I think:
1.
2.
3.
4.
Many companies think they are already demand-driven, because they forecast and
further believe that the forecasting their technology already provides is really an
accurate demand visibility signal.
Some think they are demand-driven because they have incorporated some aspects of
lean distribution or lean manufacturing concepts.
Some think they are demand-driven because they have lots of data on all their
customers.
Some think that becoming demand-driven has to mean it must result in a major
technology project.
Being Demand-Driven From the Rear
Traditionally, the supply chain has been driven from the rear (“upstream”), by manufacturers
driving product to market. The dominant activity is to push product downstream towards the end
customer, sometimes, it seems, forgetting that nothing is really “sold” until the end-customer
“buys” and furnishes that “demand signal” – not necessarily what the forecast predicted. So they
constantly exert pressure on the downstream to place orders (pushing), while everyone, at all
levels, experience difficult to predict demand (forecasting does still remain a challenge) that
often reflects a 20% to 30% forecast error (particularly at the most downstream locations!). This
most often results in inventory imbalances - overstocks and under-stocks. Wholesalers and their
suppliers often experience “bullwhip effects” caused by forecast variance. Often that variance is
not accounted for across a network of several locations; rather that variance just “cascades”
throughout the entire supply chain, from one “supply node” to the next.
Being Demand-Driven From the Front - The Contrast
Demand-driven supply networks are driven from the front (“downstream”) by actual customer
demand (product pulled to market by customers). Now, is the dominant force of “pushing” just
being replaced by another dominant force (“pulling”)? No, not really!
66 Derbyshire, Derby, CT 06418
203-732-0603
www.mcaassociates.com
2
It merely defines that companies in a supply chain network need to, and hopefully will, work
more closely to shape market demand by sharing and collaborating on demand information. In
doing so, all parties will have greater and more timely visibility into demand. The goal is to
produce, procure and position inventory, through-out the supply chain, in tandem with what is
really being bought; focusing on agility, adaptability, and alignment. Rather than simply saying
that the force of push is being replaced by the force of pull, the strategy is to match a pull, from
the end-customer, with an equal and opposite push from your supply chain participants. In other
words, react in tandem with actual demand – bring the supply chain system into a balance –
eliminate the gap between the upstream force and the end customer.
This type of business intelligence will impact more than just your ability to plan operations
(distribution or manufacturing); it translates directly into reduced inventory holdings across the
supply chain, which in turn means less reliance on forecasts, an overall reduction in the amount
of capital invested…and the associated risks. It directly impacts key metrics such as orderfulfillment service levels, supply chain cost and cash-to-cash cycle time.
Of course as you may have expected, no surprise; what you’ve read here only represents a
“slice” of the lean demand-driven supply chain equation. You may want to catch up with our
whitepaper - The Business Intelligence & Supply Chain Management Challenge: Create
Profit, Service Level & Working Capital Improvement. It provides a broader perspective on
the many facets of what could become, for you, a major evolution in your thinking about how
you operate, and in particular, the need to re-think your supply chain methods and relationships
and its impact on competitive advantage.
Isn’t this discussion really about your supply chain - versus your competitor’s supply chain?
66 Derbyshire, Derby, CT 06418
203-732-0603
www.mcaassociates.com
3
Howard W. Coleman, Principal
MCA Associates
66 Derbyshire
Derby, CT 06418
203-732-0603
[email protected]
www.mcaassociates.com
MCA Associates, a management consulting firm since 1986, works with wholesale distribution
and manufacturing companies that are seeking and committed to operational excellence. Our
staff of Senior Consultants provides operational excellence – thought leadership - and
implements continuous improvement solutions focused on business process re-engineering,
inventory and supply chain management, sales development and revenue generation, information
systems and technology, organizational assessment and development, and family-business
succession planning. MCA Associates may be contacted at 203-732-0603, or by email at
[email protected]. Visit our website at www.mcaassociates.com.
66 Derbyshire, Derby, CT 06418
203-732-0603
www.mcaassociates.com
4