In all of the debate over the origin and meaning of “demand driven” with reference to supply chains, let’s be clear about one thing:
Every supply chain—every company that has a supply chain—is demand driven.
Actually, the question isn’t whether—in reality—a company or supply chain is, or is not, “demand driven.” They all are. We can say this without hesitation because, when the demand ceases, ultimately, there is no more supply chain and no more use for the companies that used to supply them.
The real question
The real question is what the demand drives the companies and supply chain managers to do.
In the vast majority of companies, the demand drives supply chain managers to:
- Costly and vain attempts to improve forecasting – In a world where “80 per cent forecast mix accuracy is considered ‘world class,’” we find that this level of accuracy still conceals “the fact that most SKUs… will be achieving less than 60 per cent (i.e., greater than 40 per cent error!) because their demand volumes are medium to low and their statistical variability is medium to high.”* Despite huge investments in new forecasting technologies, the needle has barely moved toward effective improvement.
- Inventories characterized (still!) by too much of the wrong stuff and too little of the right stuff
- High-cost expediting practices
- A multiplicity of schedule disruptions
- Excessive and highly-variable lead times
- Tens of thousands of dollars spent regularly on various firefighting efforts
In a minority of companies—companies where the supply chain managers have discovered new ways to think about how their inventories should be viewed and managed, and how to synchronize the flow of relevant information and relevant materials—the supply chain managers are now driven in by an entirely new set of metrics that lead to:
- Achievement of planned service levels, while
- Reducing average on-hand inventories by up to 50 percent, and
- Exposing capacities in their supply chains allowing them to reach out to new and expanded markets, by offering
- Dramatic lead-time reductions, all
- Without costly expediting and firefighting, and without big expenditures on new forecasting technologies
Every supply chain and supply chain manager is “demand driven.” The difference—the huge difference—is found in what the demand is driving you to do.
What is your demand driving you to do? Is your supply chain really improving, or are you just getting better at expensive, on-going bad habits like "firefighting" and expediting?
Leave your comments here, and let us know. Or, feel free to contact us directly.