Create Supply Chains
Part three completes the series on
A Structured View
Most often, supply chain design just happens. Later, firms determine that they don't have an optimal approach for fulfilling demand for their respective markets. To create a supply chain, companies should have a partnership that extends from Marketing and Sales, and Product Design, through Sourcing and Fulfillment (and their suppliers). As well, the supply chain should be able to respond to market upsides or downsides flexibly, easily, quickly and in a cost effective way.
For part 1 go HERE. For part 2 go HERE.
Optimal supply chain networks are not just the domain of a network optimization or supply chain network optimization software. Today's supply chain designs are infused with intelligence that can fulfill their implementer's market and product vision. Today's software has allowed us to address complexity as well as responsiveness. Hence, the 21st century supply chain can be designed to meet the needs of the marketplace and the end customer, while building strategic relationships with suppliers and partners as well as reducing cost and risk.
Several demand elements should be considered in supply chain design. One is demand variability, a well-discussed topic. A less discussed topic in supply chain design is demand by product attributes. A huge recurring issue across the supply chain is the impact of market acceptance of features such as style, size, color, and other types of bundling that might be unique to the product.
The design of successful supply chains should not just be an optimization process for inventory and transportation costs, but, rather, be driven by meeting the needs of the marketplace and the end customer.
Supply Chain design as practiced today generally has no connectivity to the near-term demand data (i.e., current sales). Generally, design focuses on the so-called long-term planning horizon: once fixed, not a lot of changes are made. But a different approach, focused on product attributes, will allow us to build flexibility into this model.
Let's use a simple example. Product attributes are generally considered generic feature elements such as the inclusion of things like connectivity of your computer to mobile features such as phone, camera, and blue ray, or inclusion of measurement and communications features in equipment. Product attributes, then, translate to a rich set of variants of specific features and add-ons in which the market has interest.
But to demonstrate the network design problem, let's keep it simple. Let's say that green and pink are the now colors for 2010. The procurement system, though it knows which supplier provides red vs. green dye, is not able to sense that green did not take off as expected and we should not seek that volume discount on green dye. By incorporating the product attributes (red or green) into a structured forecasting system, we can create a model that manages upside and downside risk. Further, by engaging both the demand and supply sides in a collaborative discussion, we can create the right orders with the right prices and inventory hedge. We, at ChainLink Research, have done some significant work in this area, with our customers, and have found that it produces better supplier relationships and fewer inventories, while meeting better service levels for customers.
Growing your business takes doing many things right. From a supply chain perspective, here are a few things to note:
Sales and Supply Chain Integrations
Integration between sales and supply chain is paramount, as we discussed in previous articles. The involvement of both sales and supply chain is essential to effectively segmenting markets and channels, and developing relationships that matter.
Price Optimizations and Visibility
Pricing is a huge topic, (worthy of a few PhDs). Price elasticity models need to be applied across the life cycle of a product. Most often, however, if they are used at all, they might cover a New Product Introduction process, but never get reviewed again. As demand varies, planners wonder what the cause is. Most firms address sales decreases by jumping to promotions. That might be right, but there may be other issues at stake. Often, customers are willing to pay more, but are seeking a different delivery method or may be unaware of a product's value and benefits. So, as you can see, pricing needs a lot more precision.
Visibility of Activity across the Channel
The biggest threat to brand companies is the lack of channel integration and the lack of value of their brand to the channel partners.
Conversely, channel partners may be looking at wholesale pricing as the reason to choose a supplier in a category. They may not recognize the value of a specific brand (i.e., its margin contribution) or how it contributes an audience or brings traffic to their store. Profitability and its erosion are poorly understood due to poor visibility of market and pricing issues up and down the chain.
Fulfillment should be no afterthought! Dissatisfaction abounds in poor fulfillment practices. (We can table some of that discussion for our Logistics articles.) However, from a Demand Management perspective, short-term or rapid-response forecasting enables firms to quickly become aware of, and respond to, near- term events.
Analytics that model expected demand can be applied against actual performance, so that changes can be made immediately. Replenishment models should not be on auto-pilot; rather, they should have dynamic safety-stock intelligence. Again, visibility up and down the chain is critical, since inventory positioned in another location may be already available to meet a short-term need.
Conclusions: Making it Happen
In this series, "Taking a Structured View", we have discussed many concepts. Some may be newer to you, some may not. The key take-aways, I hope, are:
1. Take a fresh look at cross-functional opportunities and integrated data across organizational silos, from marketing through supply chain.
2. Create a new analytical framework to construct meaningful ways to look at your business.
3. Engage your customers and suppliers in creating better relationships based on better information and improved performance challenges. Use those relationships to build loyalty.
Taking a structured view to Demand Management takes some stamina for the leaders. Some of our clients have created new program offices led by one of the functional leads, Marketing or Supply Chain, to spearhead a fresh look at the business. Participating in some of these programs has been fabulous, especially when the 'lights go on' for all those involved (including the advisors), and the hidden becomes seen. The new knowledge about markets and customers is powerful, allowing businesses to find new ways to create better supply chains to serve the ever-dynamic customer.
While no one company has mastered all of the best practices discussed in this series of articles, we found that those who excelled at even one or two of the practices realized very real and substantial performance advantages over their competitors.
Read the other two parts of this three-part Demand Management STRUCTURED series:
Demand Management in the Second Decade - A Structured View - Part 1
Demand Creation. Of late, marketing organizations and solution providers have been adopting this 'best practice' terminology. It makes sense, since it integrates Marketing and Marketing Automatio... (more information)
by By Ann Grackin
|Demand Creation. Of late, marketing organizations and solution providers have been adopting this 'best practice' terminology. It makes sense, since it integrates Marketing and Marketing Automatio... (more information)|
by By Ann Grackin
We look forward to your comments, questions and contributions to this series.
To view other articles from this issue of the brief, click here.