Consumer Pull

With Demand--Driven Supply Networks, companies are moving from internally--focused supply chains to networks that react to consumer demand.


McNelly of Manugistics reports the disturbing results of a post--holiday survey his company conducted on consumer behavior prior to, during and after their holiday shopping experience. Nearly half (49 percent) of holiday shoppers said they easily found everything they were looking for the first time. About 35 percent said they occasionally were not able to find the gift they were looking for on store shelves, had to ask for employee help, or even left the store empty handed.

"These figures are simply not good enough if retailers and consumer goods companies want to remain competitive and meet their financial goals," he says. "Especially considering that 58 percent of Americans surveyed said if they didn't find the item they were shopping for at one store, they went elsewhere."

Maybe they won't have to if a demand--driven supply network is in place. -'J.K.

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Demand Management:

A Core Competency In The Battle For Market Share

Demand management is a huge issue in the food industry. In speaking with more than 300 sales, marketing, operations and supply chain executives in the food industry over the past two years, I have identified four key issues that are driving the move to improve demand management:

Lack of demand visibility: Sixty percent of companies feel their demand forecasting process is flawed and lacks a sufficient level of detail to support a production plan. Less than 20 percent of companies believe they have a workable sales and operations planning process in place.

Resource allocation to meet variable demand patterns: More than 80 percent of companies fall back on poor demand forecasts as a root cause for inefficient capacity utilization and inventory deployment. More than 90 percent of companies find little or no support from sales people in helping to predict volatile demand patterns.

Managing the customer fulfillment process: While 75 percent of companies have a handle on customer profitability at some aggregated level, more than 50 percent of companies say detailed and quickly available customer profitability was lacking and seen as a true need.

A formalized supplier measurement program: Fewer than 30 percent of companies have a supplier management system in place that includes dashboard--based scorecards, trend analysis and root cause analysis. More than 80 percent of companies without formalized supplier measurement systems believe that scorecarding is a valuable asset that they have placed on their priority list for the future.

Yet even though some food companies deem demand management as important, they still don't consider it important enough to truly work on improvement programs. Companies still have difficulty in understanding how to improve forecast accuracy, especially when it comes to understanding what the improvement is worth in profit and asset utilization.

The approach to which many food manufacturers have turned is to implement an internal collaborative forecasting process driven from a more sophisticated bottoms--up statistical forecasting approach. In today's world of supply chain tools, users need only a rudimentary knowledge of data analysis and statistics, and should be expected to primarily deal with exceptions to the forecasting process driven by predetermined business rules such as absolute forecast error.

Why is this important? In many cases, demand forecasting is the single biggest item causing customer service problems, increased inventory, longer customer lead times, and ultimately higher product costs. Food companies that view demand management as a core competency are more competitive, more agile, and more profitable.-'John Hughes

Hughes is the senior vice president of sales and marketing at Silvon Software Inc., Westmont, IL.

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