Are demand--driven supply chain (DDSN) networks the next big strategy or just the latest flavor of the month? At this point, it's hard to say. We know that, at least in theory, in order to reduce inventory, out--of--stocks and operating costs, manufacturers have to stop pushing products downstream and instead allow goods to be pulled to market by consumer demand. What Efficient Consumer Response was supposed to do so many years ago.
DDSN is a system of technologies and processes that sense and react to real--time demand across a network of customers, suppliers and employees. In other words, a consumer purchase triggers real--time information movement throughout the supply network. "This requires a fundamental change in thought on how supply networks are designed-'looking at the supply system from the shelf back and determining what is required to deliver the ultimate consumer experience," says Patrick Arelqueeuw of Procter & Gamble Co. in this issue"s cover story, "Consumer Pull" [page 26].
Yet, outside of P&G, not many seem to be embracing the DDSN concept. The company was able to dramatically slash inventory levels with its Customer Driven Supply Network. P&G says its strategy drives retail customer and consumer needs deeper in the supply network with the goal of increasing responsiveness and flexibility. And the tactic appears to be paying off. When P&G first implemented the strategy, it had more than 100 days of inventory in its supply chain. A few years later, that number had been reduced to 65 days worth of inventory and now the company is working on cutting that number in half.
This reduction in inventory represents savings in the billions of dollars for P&G, in addition to substantial operating costs savings. The main component of DDSN is demand forecast accuracy, which impacts key metrics such as perfect--order fulfillment and supply chain costs. Last year, AMR Research issued a report that found companies embracing DDSN have a 5 percent higher profit margin; deliver up to 10 percent more orders; and decrease cash--to--cash cycle times by 35 percent.
Obviously, the potential benefits are great, but what will it take for companies to change their operational strategies to support DDSN? Certainly business process change will be necessary and technology will play an important role, but internal and external cultural barriers will most likely present the toughest challenge. And without supply chain collaboration, DDSN doesn't have a prayer.
Correction: In "2005: Supercharging The Supply Chain," a feature which appeared in the January/February 2005 issue of Food Logistics, the last line of Kroger CIO Mike Heschel's comments were inadvertently cut off [page 18]. The last line should read:
' Other data has only limited usefulness due to faulty measuring points or process limitations. For example, "on time" shipments from the vendor could be con--sidered late due to our delays in the receiving process.
We regret the error and would like to thank all of our readers who contacted us about it.