If you are a regular reader of my articles on supply chain management matters, you will know already that I am a big fan of “easy” versus “hard.” You might also recall that I am a firm believer in the principles of “inherent simplicity”—the concept that the more complex a problem appears to be, the simpler the effective solution must be.
Five Steps Forward
Recently I came across an article written by a highly respected leader in the world of supply chain management. In the article, the author acknowledged—as many others have—the utter poverty of technologies that came out of the 1990s and earlier when it comes to solving today’s supply chain problems, writing: “The… technologies of Advanced Planning (APS) along with Distribution Requirements Planning (DRP) and Material Requirements Planning (MRP) amplify the bullwhip effect within the supply chain resulting in the loss of agility and an inflexible response for the long tail.” [Note: I’m not trying to start or contribute to an argument here, so I will not mention the author by name.]
In the article, this writer lays out five steps for “moving forward.”
I would like to compare the five steps articulated in the article I read with the five steps articulated by the Demand Driven Institute (DDI), because both the author in question and the DDI believe that the answer for supply chain executives and managers must be found in becoming “demand driven.”
Here we go:
Step 1: Define the [supply chain] process from the customer back, mapping all the demand signals (social sentiment, weather, ratings and reviews, channel inventories, and point of sale) and define how to use new forms of demand data. Measure and understand the impact on demand latency.
Sounds intimidating just reading it. I suppose if you happen to be a Fortune 500 enterprise willing to spend (perhaps) millions on such a venture, this might be in the realm of possibility. But how long will it take? What evidence is there that you will actually see a positive return on investment?
Step 1: Strategically position your supply chain buffers
In the typical implementation, this can be fully accomplished in a matter of days or weeks, and at a relatively low cost. (The cost for this phase will certainly be in the thousands of dollars, not the hundreds of thousands or millions that might be required by the alternate Step 1.)
Step 2: Build an outside-in demand planning model to use channel data. Experiment with attribute-based planning and probabilistic forecasting to better predict the long tail.
“Building” and “experimenting” sound like potentially long and drawn-out processes. And, what if the experimentation results in little or no real gains in your supply chain’s performance?
Step 2: Set buffer profiles and levels
Buffer profiles and levels are already taking advantage of actual demand feedback from your “channel,” and designed “probabilistically” cover your supply chain needs—long tail, or not.
Step 3: Use the probability of demand (not fixed numbers) to drive the flows and buffer strategies for inventory and material planning. Focus on managing form and function of inventory.
Here we find considerable agreement! Views of the DDMRP buffer status are truly a reflection of the “probability” that the buffer will meet demand expectations.
Step 3: Institute dynamic buffer adjustments
DDMRP employs the concept of buffer status to drive execution. The buffer status—a simple combination of a color and a value—tells everyone in the supply chain the likelihood of the buffer being able to protect supply chain flows.
Step 4: Implement demand sensing technologies to improve the short-term demand signal to improve replenishment and supply chain execution…. However, realize that most… [such] projects are [still] evolving.
Again, this just sounds expensive. It also sounds unproven, since the writer tells us that these kinds of projects are still “evolving.” If you’ve got time and money to spend (or, maybe, waste) on such things, take this step.
Step 4: Create a process for demand-driven planning
This is a “creative” step, all right, but the Demand Driven Institute has clearly laid out the rather simple steps for creating such a process. This is not rocket science and it doesn’t require vast investments in technologies.
More experimentation with bleeding-edge technologies. This sounds to me, again, like very expensive with little assurance of positive return on investment. Got money to burn? Go for it!
Step 5: Build a high-visibility, collaborative execution process
As I have written elsewhere, since the data-set require is simple (not complex) building a high-visibility environment that encourages broad and effective collaboration across your supply chain becomes a low-cost, relatively easy-to-implement option.
When I compare these two sets of five steps, I cannot help but observe that the five steps proposed in the article I read are absolutely out of reach for 99 percent of the companies with which we work day-in and day-out. The have neither the time nor the money to spend on such programs—especially when the pay-off (if any) is likely to be in the far distant future, and may not come at all.
The concepts articulated by the Demand Driven Institute, on the other hand, are proven effective and can be readily implemented in almost any business enterprise in a matter of a few months. Read the case studies here.
To me, the choice is clear.
What do you think? Leave your feedback here. Or, if you prefer, feel free contact us directly instead.