Professionals today at high growth technology companies are asking themselves, “How can my supply chain react quicker to customer demand fluctuation?” The answer is simple, adopt a demand-driven planning process. Sound simple enough? Well unfortunately it’s not that simple but below are some simple steps you can take to start to transform your supply chain to better support consumer demand fluctuation.
Demand-driven planning is the process for balancing supply and demand and the overarching solution for managing customer demand fluctuation. Implementing a demand-driven planning process is no small task for high growth technology companies but it will pay huge dividends for you, your team and allow your company to gain a competitive edge over your competition. Taking the first step toward true demand-driven planning isn’t easy but the four approaches below when followed will allow you to implement demand-driven planning.
- Supply Partner Collaboration: It is important to collaborate with key partners in the supply chain; engage customers, logistics providers, supply partners, and internal departments to eliminate non-value added noise. Your company needs visibility upstream and downstream to make a responsive decision on inbound and outbound inventory flows. Internally, the sales department can alert you of trends that may not be identifiable in the data. Good supply partners have the flexibility to adjust production up or down with you in the best interest of the relationship. Logistics providers are there to support the physical flow of goods, and do so for many other customers. Ensure that you are communicating volume forecasts to your logistics providers to identify any potential capacity issues.
- Forecasting: The best forecasting is more science and less art. Companies spend countless hours/days/months/years trying to master their forecast in the hope that they will mitigate the risk of carrying too much inventory, losing sales due to out of stocks, or being stuck with a bunch of product that they thought would sell. To truly be successful at forecasting you have to stay close with what your customers are saying. Build a rock solid, demand-driven planning process that balances historical sales with market input from your supply chain, sales, marketing, and finance teams. Collectively all of the stakeholders build what is called a “consensus forecast“, which is used to drive all business functions across the entire organization. The heightened awareness of a demand-driven planning process once implemented will increase accountability in the forecast and allow the organization to march to a single drum beat. No one department or person should be surprised when the forecast accuracy is on point or off point, because the important thing is that its the company’s forecast, not sales, marketing, finance or supply chain alone.
- Information Technology: In our experience information technology is arguably one of the more important aspects to truly adopting a demand-driven planning process. There is a tremendous amount of noise in the information being collected from the market and to react quickly you must be able to aggregate, analyze, and report key findings to adjust your demand or supply needs throughout the supply chain. First; identify the information you are collecting and then standardize how that information is captured/collected, which can be harder then it sounds, but starting with what and following with the how will expedite and enhance options in the long run. Secondly; establish your reporting structure, essentially answer this question, “what do you plan to do with the data?” Lastly; identify ways to automate the collection, and reporting of information. Companies that properly outline, implement, and execute information technology can streamline their operations and enhance their process flows.
- Supply Chain Segmentation: One best practice that we highly recommend is to establish a demand profile (segmentation). This can be used to segment customers, products, or groups of products into classes that are easier to forecast. Segmenting your customers into appropriate groups may help you determine which type of manufacturing process would be best to service their needs. For example, distributors who are viewed as key business partners have a vested interest in the amount if inventory they carry to service retailers, and they don’t want to carry too much or too little, just like your company. By identifying distributors as a single group, your company may decide that it makes logical sense to service distributors with a Make-to-Order (MTO) manufacturing process. MTO means that once an order is placed, manufacturing will produce exactly enough goods to fulfill the order. Distributors will then know exactly what products they will receive and when based on the manufacturing lead time, which secures their inventory position to service their customers. This is a win-win for both your company and your distributor and together you have both reduced your inventory exposure.
We hope the above approach to adopt a demand-driven planning process will give you the competitive advantage your company needs to soar past the competition.