The Hindu Business Line : Demand-driven supply networks

AS A manufacturer, wouldn't you welcome a system where there are no warehouses, inventories or paper invoices, just plug-ins that monitor your supplier network automatically, in real-time, everywhere, simultaneously?

Synchronised execution of manufacturing and supply across a dynamically re-configurable supply chain network, to profitably meet demand, is an ideal scenario. Optimised Demand Driven Supply Chain Network (DDSN) is enabling companies achieve this.

The mantra is moving from just measuring performance, on internal cost and efficiency, to external processes targeting customer-satisfaction at the shelf. Having a well-harmonised network maintaining high operating margin — not just profits or growth rate — is the goal of any organisation.

The supply chain management (SCM) software IT services market is expected to expand to $40.5 billion by 2007, representing a five-year compound annual growth rate (CAGR) of 9.2 per cent, as revealed by an IDC study. The shift from the regular SCM to DDSN is happening rapidly with increasing globalisation and this evolved form of SCM will bring down the walls to reach customers wherever they are.

The global market place is increasing the need to manage changes across geographies, and maintaining steady demand not only during a product's lifecycle but also during periods of fluctuation. With advanced technology and know-how, product lifecycles have shortened while product mix is getting more complex. In this changed scenario, DDSN seems to be the ideal solution. Strategising for managing all resources aimed at meeting customer demand, setting up metrics to monitor and mange the supply chain are all important elements in the entire process.

Planning right, in a supply chain, comes first followed by effective execution. The SCM software seamlessly integrates the planning and execution functionalities for operations, improving workflow and reducing inventory.

Here is an example of the collaborative usability of SCM: Two companies that have mastered the demand-supply game are Wal-Mart and Procter & Gamble.

Before these two companies started collaborating, in the early 1980s, retailers shared very little information with manufacturers on the day-to-day change in demand and subsequent requirements. These two giants had a vision to strategically integrate the manufacturer and the retailer and they implemented a software system that hooked P&G up to Wal-Mart's distribution centres.

As and when P&G's products ran low at the distribution centres, the system would send alerts to the company to ship in more products.

In some other cases P&G monitored the shelves throughout the Wal-Mart stores real-time via satellite link-ups that sent messages to the factory whenever P&G items went past a scanner.

At the manufacturer's end, the system helped save millions by reducing inventory and lowering order-processing costs, not to mention saving time. While at the retailer's end, it increased affordability, with "low, everyday prices" resulting in higher customer satisfaction.

Cisco Systems, is also recognised for its supply chain collaboration. Cisco has a network of component suppliers, distributors and contract manufacturers who are linked through Cisco's extranet to form a virtual, just-in-time supply chain. Any order lodged at any point in the supply chain triggers a flurry of messages across the chain, alerting for appropriate actions.

Though this is undoubtedly a system is hassle-free and effective, roadblocks do exist in implementing the demand-driven supply network. The first of these is building trust and reaching out to customers.With the huge number of manufactures and suppliers along the supply chain, building and maintaining trust is a challenge. The implementation process goes beyond a company and it is not just employees who will need to adapt to the new system, but also suppliers.

Customer-demand management: The customer-driven supply chain network is best thought of as a dynamic networking of organisations and supply chains that work in collaborationto provide a seamless pipeline of products and demand information from source suppliers through to end consumers. The challenge here is to build alliances that help reach the customer faster. So, collaboration is the key.

Taking mistakes in stride: Managements need to understand that implementation will not yield results "Day One"; there will be some latency due to customisation and user comfort. They should be ready to learn from mistakes. Once employees understand that they will be merging their expertise with the system's increasing accuracy, they will get accustomed to the new technology.

The DNA for success: The DNA of businesses today is made up of efforts focussed on increasing business velocity and eliminating waste. Organisations should constantly focus on driving down backlogs, promoting best practices, and creating synergies among adjacent processes.

Supply chain expertise should comprise four main traits: demand management, internal collaboration, leveraging partners, and financial fundamentals.

According to a report by AMR, company operations that are integrated with demand-driven supply networks help reduce as much as $3 trillion of inventory and 20 per cent order error rate in US and European supply chains alone.

Like the Dell direct model that enables effective forecasting of demand, companies can form robust processes from real-time collaboration and synchronisation. Being in touch with the market keeps companies clued onto changing customer demands.

Demand-driven supply networks use new technologies such as RFID (radio frequency identification) to achieve accurate forecasting, which goes a long way in maintaining demand-supply balance.

Thought, leadership and flexibility: The ability to maintain flexibility is crucial to decision-making. DDSN calls for adaptive responses to unforeseen demand. For example, in case of a stock-out, a plant must be able to change the existing schedule on a same-day basis to produce the required product to meet retail commitments.

Collaboration enterprise: Manufacturers must learn to collaborate internally and externally. This builds the culture of information sharing empowering everyone across the board. Collaboration makes it easier for companies to adjust to changing scenarios.

Collaboration facilitates real-time focus on inventory levels, capacity outlooks and new technology drivers, which, in turn, helps in better management of demand. Setting up a collaborative network will help build effective supply chain components.

Focus on business fundamentals: The four key metrics, which the organisation must always strive towards are, quality, productivity, delivery and customer satisfaction.

Continuous improvement: Companies need to identify areas for improvement that have significant cost reduction potential and high probability of successful implementation.

Demand-driven manufacturing will cut supplier lead-time as much as 25 per cent and eliminate non-value added activities, taking the product to the customer on time. The strides made, though small, will definitely take companies far.

(The author is a Delhi-based proposal and market research analyst.)

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