Imagine a network that leverages demand signals to optimize the store shelf. What a wonderful supply chain it would be.
"For the consumer packaged goods (CPG) industry, like most industries today, time is money," says Patrick Arlequeeuw, a vice president at the Procter & Gamble Co., the Cincinnati--based consumer products giant. "The longer the supply network, the more costly it is. Clearly, there's a compelling business case for increasing the speed and flexibility of the supply network to deliver new product innovations that are in rhythm with retailer and consumer expectations."
Roddy Martin, vice president of industry strategies for consumer packaged goods at AMR Research, Boston, calls such a process the Demand--Driven Supply Network (DDSN). He describes it as a system of technologies, processes and capabilities to sense and respond to real--time de'mand signals across a network of suppliers, customers and em'--ploy''ees.
Actually, this vision has been around since the late 1980s.
"Continuous replenishment was a very early example of companies trying to implement a demand--driven supply capability. It really did start reflecting what consumers were buying, and companies used that to drive the replenishment process," recalls Ralph Drayer, president of Supply Chain Insights, a Cincinnati--based consultancy.
Unfortunately, back then the technology and the operational savvy were neither available nor commercially viable to take the process to the next level. That is changing. Companies are taking steps-'albeit baby steps-'to move from an internally--focused supply chain to a network that reacts to consumer demand.
"DDSN is still in its infancy," says Kevin McNelly, vice president of solution management at Manugistics Group Inc., Rockville, MD. "Manufacturers are no longer pushing the product. Instead, they want to be leaner and align their operations to respond to demand pulls through their supply network. The days of manufacturers operating by stocking up on inventory and then responding to demand does not work anymore. The second a product is taken from the shelf, the wheels should already be in motion to meet that demand. Manufacturers need to continue their focus on the customer, aligning around customer demands, and ultimately minimizing their inventory."
Martin of AMR Research stresses that DDSN is not another IT project, but an operational strategy. He says only one company is taking the process to the next level: Procter & Gamble.
"P&G is pursuing a strategy we call 'Consumer-Driven Supply Network,' which drives retail customer and consumer needs deeper into the supply network with a goal of increasing responsiveness and flexibility," says Arlequeeuw, who directs this initiative for the company. "Ultimately, it will allow us to better address the needs of our retail partners and the consumers we both serve."
Satisfying The Retailer, Consumer
According to Arlequeeuw, the idea behind a supply network is that all of the stakeholders in the supply chain work together in real time to meet retailers' and consumers' needs.
The common vision in the CPG industry is that a consumer purchase triggers real--time information movement to the supply network. This will offer significant benefits to retailers who can help make this vision a reality, he says, by supporting the development of industry standard processes and providing access to data that offers a common view of demand.
"This really requires a fundamental change in thought on how supply networks are designed," he explains, "looking at the supply system from the shelf back and determining what is required to deliver the desired consumer experience. This will require a close partnership with our retail customers and suppliers. This collaboration is key because it should give us the visibility we need along the entire network, from the store shelf back, to efficiently design and deliver what is required."