Tweet

company resource center white papers

Enabling a Demand-Driven Supply Chain:
Business Implications and Technology Considerations

THE DEMAND-DRIVEN WORLD

Historic changes are radically altering the competitive landscape for all manufacturers. As Thomas Friedman describes in The World Is Flat, "if you want to grow and fourish in a fat world, you better learn how to change and align yourself with it." A wide range of factors is fundamentally changing supply chain management, and the result is a new basis of competition.

Today, the customer is king. Many electronics products are driven more by consumer than commercial purchases, which is making them susceptible to the rapidly changing preferences and short lived trends of the market. Walk into a consumer electronics store and look at RIM's BlackBerry or Apple's iPod. Color, form factor, and styling are more important to many consumers than the features and functions. And, consumers expect "what they want, when they want it," placing mounting hurdles to achieving and maintaining brand loyalty. If a consumer is ready to buy and a brand owner's product is not on the shelf, they will buy something else, increasing the pressure for companies to unfailingly meet aggressive demands.

Of course, commercial products are not immune to these same trends. Expectations for customization, last-minute changes, and aggressive pricing are not restricted to consumer purchases, but also impact behaviors of individuals purchasing for business needs. And the pressures faced get passed on to suppliers, creating a vicious cycle that feeds on itself to further exacerbate the consequence of these trends.

BUSINESS IMPLICATIONS AND CHALLENGES

Velocity-based competition, shortened product lifecycles, increased demand variability, globalization and global sourcing, leaner supply chains, more mass customization, cost volatility, and competitive pressures have altered the supply chain management requirements in fundamental ways, causing organizations to rethink how they operate or risk being left behind.

Responding to change has quickly become an imperative for today's manufacturer. While planning remains a core part of any business, the faster pace of change multiplies the problems that planning can't prevent. The fnancial impact to a company unable to respond to change can be crippling. Poor response can affect both the top line (e.g., inability to win new business, loss of customers to competitors) and bottom line (e.g., negative impact on margins, write-off of excess and obsolete inventories) of a company. Short of a strategic solution to responding to change, many companies have institutionalized costly "just-in-case" measures such as buffer inventories, expediting, and overtime in an attempt to compete.

As companies establish a more global footprint, the execution challenges to meeting changing demand escalate rapidly. Understanding and anticipating consumer behavior is no longer a local issue, but is now global. And while the fat world ushers in a new era of global competition that drives rapid innovation and pricing pressure, demand sensing and responding become critical to the effcient operations of a supply network—yet but are challenged by geographic dispersion.

Likewise, despite all the intended benefts of outsourcing manufacturing operations, brand owners have found themselves signifcantly challenged by the lack of supply network visibility and the inability to respond to constant changes. This results from the fact that most essential supply chain information now resides with third parties.

Brand owners have become "virtual companies" with global supply networks comprising contract manufacturers (including work-in-progress, raw materials, providing a fnished goods buffer, and consigned materials), suppliers (raw materials), third-party logistics providers (maintaining a fnished goods buffer and providing effcient logistics) and, ultimately, the customer. Brand owners remain directly accountable for customer satisfaction, delivery performance, their own fnancial results, and regulatory compliance, but are increasingly vulnerable to mishaps in meeting customer and shareholder expectations because they no longer have direct control over manufacturing and supply chain operations. As a result, proactive supply chain risk management via Response Management strategies is required to effectively respond to unexpected changes as they occur. Response Management empowers people to respond rapidly to constant supply network changes and deliver superior operations performance.

It's clear that manufacturers need to make fundamental changes in the way they think about their supply chains (now supply networks). To effectively manage the volatility in demand, companies need to become more demand-driven. AMR Research has defned a demand-driven supply network (DDSN) as "a system of technologies and processes that senses and reacts to real-time demand across a network of customers, suppliers, and employees."

In DDSN: 21st-Century Supply on Demand, AMR defnes the 21st-century supply chain. Unlike the left-to-right linear chain based on hard assets, DDSN looks more like a self-renewing interaction between three strategic business domains: demand, supply, and product. Visibility and freedom to act in all three domains at once defnes the demand-driven business of the 21st century. In Regaining Control & Managing Risk: The Electronics Outsourced Model Evolves, Industry Directions outlines various trends relevant to this shift, including:

• Supply chains extend far beyond the core enterprise. To survive in today's highly outsourced environment, companies must follow an "outsourced competency model" in which they focus on business functions that truly give them competitive advantage and offoad the rest as much as possible. As a result, enterprises have evolved into "business ecosystems" comprising myriad specialized trading partners working towards sets of common goals. The success or failure of this network of highly interdependent companies relies on how effectively trading partners, suppliers, and others up and down the supply chain work together.

• Traditional SCM tools are not very effective in the new environment. Companies frequently struggle to effectively manage their supply chain relationships, particularly those with non-strategic customers and suppliers (partly since most resources are focused on frst-tier, strategic trading partners and customers). Diffculties in creating and sharing scorecards, managing to the contract, and agreeing on results are common.

  Many companies say that increased outsourcing has resulted in a loss of control over a wide range of key inbound and outbound supply processes such as inventory liability, warranty and returns reconciliation, analyzing and managing risk with customers, order processing, sharing forecasts/order changes, and more. The most commonly used collaborative tools include email, EDI, fax, phone, and face-to-face meetings, yet none of these have proven effective in helping companies to gain visibility and respond to change across complex supply chain ecosystems.

• Visibility into demand signals is more important, yet also harder to obtain signals. Forecasting has long been an SCM challenge, and despite the emphasis on enhancing it after the inventory crisis of 2001, improvements are still needed. Research shows that accurate forecasting remains problematic for the electronics industry, particularly for companies that depend on outsource forecasts to drive production and inventory management planning and activities. As the authors note, "most information fows upstream and downstream in a cascading fashion, one element, department, or tier at a time. This cascading model all but ensures partners will make decisions based on outdated information and different versions of ‘the truth'." The results of this are dire: "delays and ineffectiveness at best; wrong decisions, lost opportunity, and product or market failure at worst."

In the 20th century, most manufacturers deployed enterprise resource planning (ERP) systems designed to support a push-driven, build-to- order supply chain and help the business run like clockwork. In addition, supply chain planning (SCP) applications were built in a manner consistent with the way these supply chains were organized—i.e., as batch, sequential planning systems designed to run cycles in days and weeks, not minutes and hours. The very strength of SCP systems and their design approach towards planning to run the business like clockwork resulted in some tradeoffs. Their batch, sequential process is inherently diffcult to change. And, in accordance with the internal nature of manufacturing operations and business needs at that time, these systems lack both visibility to external information and broad collaboration capabilities.

There comes a point when increasing the complexity and frequency of the planning process in response to frequent business change is no longer the best approach to improving performance. For example, the military is highly regarded for its planning processes, including precise training, fuel and weapons planning, intelligence gathering and briefngs, and similar activities before any mission. Yet the military has also invested in a strategic approach to Response Management in the form of heads-up displays for pilots to give them real-time information and the ability to rapidly course correct when things don't go according to plan. The military practices excellence in planning and Response Management.

Brand owner visibility plays a crucial role as well—yet a variety of trends make gaining clear supply chain visibility more diffcult now than ever before. For example, the vast majority of outsourcers still manage critical components either fully or jointly with contract manufacturers, and more processes are being outsourced outside the enterprise. This diminishes companies' control over these processes, reduces visibility into critical operations, and makes the supply network less responsive to volatility. Meanwhile, few outsourcers believe they are doing an adequate job of forecasting, and a signifcant portion of companies don't even know whether they've lost control over processes or not. All this is occurring at a time when the need to comply with Sarbanes-Oxley and changing environmental regulations—along with the need to respond quickly and effciently to daily shifts in supply, demand, capacity, and product—make better visibility imperative.

In this environment, companies would beneft from utilizing collaborative technology that lets them not only anticipate and respond to events as they occur, but also share a synchronized view of information they must act upon.

ENABLING DDSN: TECHNOLOGY CONSIDERATIONS

Responding rapidly to change in today's complex, multi- enterprise supply networks requires the organization to quickly make tradeoffs and compromises to resolve problems. The best people to spot and act on these issues in a timely fashion are the ones directly involved and intimately familiar with the situation at hand. As such, the Response Management process, given the intrinsic nature of its function, must be very decentralized.

Dealing with a last-minute order change or drop-in, an unexpected hiccup in supply availability, or the need to manage engineering revisions in the midst of rapidly shifting demand requires human intervention. Key decision-makers throughout the supply chain network must have ready access to both the information and tools to quickly understand the impact of these changes and determine the right course of action—one that will proactively drive Key Performance Indicators (KPIs) to meet the businesses objectives. Too many companies have failed to strategically address this Response Management challenge.

A demand-driven supply network requires the proper use of appropriate technology to be successful, but as AMR Research clearly states, technology alone is insuffcient. A combination of tools and technologies must be put in the hands of the right people. To optimize the response to change, users throughout the organization and supply chain need tools that provide three key capabilities: 1) global visibility to actionable data, 2) the ability to rapidly and collaboratively assess many "what-if " alternatives, and 3) a comprehensive scoring mechanism that accurately predicts the impact of proposed responses and weighs alternatives against company goals and customer requirements so the best option can be implemented.

GLOBAL VISIBILITY

Global access to current, live data from multiple, disparate ERP, SCP, and legacy systems across internal and external supply chains combined with proactive alerting allows action teams to accurately align all supply and demand considerations based on exceptions. The ability to instantly and continuously capture new changes and agreements as they are made gives all participants a single view of the truth, empowering individuals across the organization to make intelligent, reality-based decisions and respond at the moment.

COLLABORATIVE ASSESSMENT OF "WHAT-IF" MULTIPLE ALTERNATIVES

A web-based client interface that enables key players and suppliers both inside and outside the enterprise to rapidly propose, detail, and share potential results of myriad action alternatives facilitates the true collaboration crucial to identifying the best options.

COMPREHESIVE SCORING MECHANISM

By enabling groups to immediately evaluate multiple scenarios in terms of how well they meet specifc metrics and objectives, the scoring mechanism ensures that decisions are aligned with corporate goals and proft targets, rather than being based on personal opinions or guesswork—allowing companies to understand the impact of their choices before they make them.

Response Management solutions integrate these capabilities to empower front-line decision-makers throughout a supply network with the information and tools to rapidly respond to changes in demand, supply, and product. With such a solution, brand owners are able to manage supply/demand alignment, respond to demand changes, proactively managing inventory and supply exposure as well as material costs across their supply networks.

ABOUT KINAXIS

Kinaxis delivers an on-demand Response Management service that enables customer-focused companies to achieve breakthroughs in operations performance and customer satisfaction by rapidly and more proftably responding to constant changes in demand, supply and product. Kinaxis RapidResponse combines personal alerting, multi-enterprise visibility, collaborative "what-if" analysis and rapid decision support to empower front-line supply chain staff with tools for risk tradeoff and response to daily changes inside the Sales and Operations Planning horizon. Global leaders such as Casio, Honeywell, Qualcomm, Raytheon and Toshiba use Kinaxis RapidResponse to establish superior responsiveness within their fulfllment networks and supply chains and gain competitive advantage. For more information, visit the Kinaxis web site at www.kinaxis.com or the company's blog at blog.kinaxis.com.

Comments on this paper?
Want to learn more?
Please join us online at:
http://blog.kinaxis.com