Becoming demand-driven on command
It was the end of a long day. My feet were tired, and I was glad to find a quiet stool in the corner of the conference center. As I curled up my legs and kicked off my shoes revealing one of those inevitable conference blisters from high heels, I reflected. Conference speaking takes a lot out of me. My hand was enjoying the warmth from the porcelain coffee cup and I was loving the solitude when a supply chain leader approached me with a cup of tea in his hand. “Would you mind if I asked you a few questions,” he asked. “No, of course not,” I said, as I shifted to make room for him to sit.
By Lora Cecere
“I heard you speak on the importance of becoming demand driven in your session, and I know that you have been studying these concepts for over a decade,” he said with intensity as he took his seat opposite me. His brow was furrowed in thought as he spoke, “In our organization, we have made great improvements in our forecasting system, and improving demand accuracy, but I fear that this is not enough. What are the steps to becoming demand driven? How should we get started and what advice do you have?” The questions were asked in rapid-fire succession with little time for a breath.
I smiled, and said, ”Let’s take a deep breath. The demand-driven transformation is a journey not a destination.”
I continued. “While many people think that the journey to become demand driven is about improving the forecast, this is a misnomer. Instead, it is about the use of demand data. Why? Each organization has a product line with defined forecastability and product tail (characteristics of product demand by item). After you implement, demand planning well, there is little that you can do to improve the bias and the accuracy of the forecasting process. It is what it is. Recognize this fact and begin to focus elsewhere. I would recommend that you stabilize your efforts on demand planning and learn how to use demand data. Help the organization to embrace the probability of demand.” I smiled as my guest wrote furiously.
We talked for a while; and I then, asked him to turn his efforts into five projects:
Reduce Demand Latency. Sense Demand. Use channel data to sense demand. Measure and reduce demand latency. While traditional systems translate the forecast into Distribution Requirements Planning (DRP) using rules, realize that this approach will never be right. Instead, deploy new technologies with pattern recognition to translate channel demand into DRP requirements.
Use Channel Data. In essence, companies are not doing a good job in the use of channel data. Spend time harvesting and using distributor data and point of sale data. Bring this data directly into analytics systems to sense demand patterns and translate them into the forecast as indicators. Use multiple sources of demand data in the forecast, and build a demand signal repository to harmonize and synchronize demand data from multiple sources.
Automate Manufacturing to Use Independent Demand. Translate independent demand into a product segmentation strategy. Understand the length of your product tail, and use this insight to design the supply chain segmentation strategy to manage manufacturing processes (outsourced or insourced). In your own manufacturing processes, use this insights to build your product rhythm wheel. To do this, select a finite capacity planning vendor that can translate independent demand—what is happening in the channel into rhythm wheel requirements.
Design for Demand Volatility. Actively design the supply chain. Use new forms of inventory technology to design inventory buffers. Where demand volatility is high, design push/pull decoupling points. What does this mean? Push to a point, and then use independent demand to formalize the plan for packaging.
Reach Balance in S&OP. With the growth of the global multinational, coupled with the increase in demand volatility and supply uncertainty, S&OP experienced a renaissance. I am sure that you have seen the many talks at conferences. However, no two processes are alike. They are different at each organization. However, the greatest value happens when the “S” in S&OP is balanced with the “OP”. What does this mean? The efforts to understand sales and channel demand are balanced with the needs of supply.
“This is where I would start,” I said while tightly holding my almost empty cup. “Many people get lost thinking that the roadmap to become demand driven is about forecasting. They think that it starts and ends with a better forecast; however, I think that it is much, much more. My advice is to think more broadly. Does this help?” I said. I leaned over to put my shoes back on my tired feet to return to the conference…. I was speaking next, but wanted to be sure that I had answered his question.
“Yes,” he said. “It is easy to apply these new words to old paradigms. I need to help my team to think differently. Thank you for your time….”
We then both disappeared into the sea of conference faces to meet on another day. I speak at over 100 conferences a year. This conversation happens frequently. I may never know his name or his company; and I will probably never know what happens to the advice. All I know is that I get asked this question over and over. I hope that somewhere, it will take hold, and a great demand driven project – one that reduces costs, improves inventory turns and customer service – will become a reality.