Pathway to supply chain management excellence

By Charles Nyika | Jun. 21, 2024

There is need to maintain a hell copter view and a glass pipe-line view of the supply chain network at every turn along the way.

The global trading landscape is witnessing extreme periods of volatility and complexities.

The trading environment has of late been structurally different than in years past. The heightened expectations from customers for responsiveness are very high and will remain high.

Supply chain management is entering a new frontier where demand management should be part of the main agenda for boardroom conversations. Whenever the economy is heading south, the concept of demand management should be moving to the forefront of business strategy with a view to capture the attention of many supply chain professionals. Amid the ever-swirling uncertainty, the quest to develop a highly responsive and efficient supply chain network through demand management is understandable. It could easily serve as the linchpin for a more responsive and flexible supply chain.

Demand management systems are slowly becoming default measurements for supply chain excellence. It is advisable for supply chain professionals to make demand management a staple in their organizations and half of their supply chain problems will be solved.

In the wider world of business, at a minimum, it is now a strategic imperative for procurement professionals to keep an eye continuously and consistently on supply and demand patterns for the sole purpose of creating a balance. Failure by supply chain professionals to recognize the standard deviation of demand at each category level will result in supply chain failures over time.

There is need to maintain a hell copter view and a glass pipe-line view of the supply chain network at every turn along the way.

The shifting demand cycles are a function of disparate everchanging variables such as constant weather changes, unusual consumption patterns, promotional messages that stimulate a spike in demand, changes in consumer purchasing power, changes in micro economic policies and or government regulations.

Over the years, the old demand planning models relied heavily on having to wait until the end of the month or after every quarter in order to come up with production schedules based on past shipments and past sales.

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Such traditional models of baselining future demand on historical usage patterns can no longer be relied upon to give a more accurate view of demand patterns. What is clear and very clear is that the hands of time will not certainly favour such models anymore. It is no longer enough to look in the rear-view mirror.

The problem with historical sales data is that it will tell you what happened in the past, but it doesn’t tell you why it happened.

While it is acknowledged that no one could ever discount the importance of historical patterns and its great insights, history will always represent what it represents, the past.

However, as we move into the future, the new demand planning models are now advocating for an in-built capacity to balance the supply and demand variables in the organization which will enable the business to see future patterns that others do not see.

Savvy supply chain professionals are required to think ahead of the game, predicting what consumers may want, even before the customers do it themselves.

Yester year supply chain designs were largely reactive, often lacking the capacity to sense, flex and adapt in line with what is required on the open market.

Failure to balance supply and demand will inevitably affect the entire manufacturing cycle and the entire trading cycle of the supply chain network.

An unexpected spike or drop in demand will often lead to problems such as stockouts and lost sales, inventory pileups and or markdowns with write-offs and declining service levels.

Failure to balance these two important variables can easily cause unnecessary increased costs due to expedited orders. It can also create white spaces for competitors to move in and fill the yawning gaps. On the flip side of the coin, an overestimation of demand could easily result in a bloated inventory and its attendant high costs.

Achieving the right balance between supply and demand will therefore underpin a productive and sustainable business model for those organizations that are primed for future growth.

With a promise so great, demand management requires high levels of collaboration between and among functional departments to include procurement, logistics, manufacturing, finance, marketing and sales to enable all stakeholders to move in step.

The perfection of the demand plan will only be as good as the input it receives from various interested parties.

A useful mantra in supply chain collaboration is to ask as well as to tell. For a demand management plan to become fully functional, there is need for stakeholders to practice information sharing, planning and execution of joint actions with resource and knowledge sharing being a strategic imperative. Those who intend to be part of the solution must be part of the conversation.

Value can only be co-produced where partners work together with a view to tip the scales in favour of profitability. Although it is an opinion splitting generalization, supply chain professionals are fully aware that there is no other metric that is more important to a business organization than its profitability.

In pursuit of the profitability objective, stakeholders must establish user systems that are user-friendly for the promotion of a truly dynamic supply chain collaborative system with a view to establish a coordinated, synchronized flow of information throughout the chain.

Collaboration in demand management requires a system that brings together inputs and insights from different supply chain partners to improve visibility and the ability to respond to market fluctuations quickly and accurately. Collaboration is ordinarily underpinned by strong interpersonal chemistry between supply chain partners. They will provide real-time eyes and ears to the business. Having a united lens gives organizations a unified view of current demand patterns. Such collaborative initiatives are akin to having a vertical integration business model without necessarily incurring any capital investment.

Thought leaders in supply chain management will therefore find the lure of efficient demand management best practices difficult to resist.

Drawing on decades of experience, today’s rapid-fire changes in customers’ demands and competitors’ offerings requires demand management to heavily rely on forecasting. Effective demand forecasting processes will provide a window into the future opportunities, enabling business organizations to improve customer service, reduce inventories and shorten customer lead times. Failure to do so will obviously invite severe problems in the event of supply chain shortages or sudden demand peaks.

It is important to point out that a strong demand forecasting process does not concentrate on historical sales activity only. There is need to take into consideration future demand signals emanating from marketing plans and demand data from retail points of sale.

Near accurate demand forecasts will help to prevent unwanted products from reaching the inventory pipelines hence aligning with practical realities in the chain.

When it comes to forecasting, the journey is just as important as the destination. In line with broader industry best practice, demand forecasting requires the use of adequate amounts of relevant data. The accumulated wisdom from previous experience has taught us that without the right amount of data, demand forecasting is akin to driving a car whilst looking into the rear-view mirror.

The greater the use of adequate amounts of data, the greater the confidence in demand forecasts.

It is sad to note that the people who are responsible for demand planning are often treated like those who are responsible for weather forecasting. These people will never get a whiff of credit when their forecasts turn out to be accurate but on the other hand they are roundly criticized whenever their forecasts turn out to be inaccurate.

But it must always be remembered that without forecasting, the only certainty is more uncertainty.

Savvy supply chain practitioners must refrain from the continued use of spreadsheets and rules of thumb to set inventory and customer service targets. It is often said that information can be an inexpensive substitute for inventory.

Without a properly established information management system, there is often a tendency to hold excess inventory as supply chain professionals rely on second guessing in their demand projections, material availability and delivery schedules across the supply chain.

Because of poor information management practices, most organizations continue to become inventory rich but cash poor.

Robust data management best practices will assist in bringing supply chain visibility resulting in lead time compression, reduced inventory, reduced working capital and improved cash flow. It will therefore be easy to avoid bloated inventories, stale products and clogged distribution networks.

As a corollary of the above, predictive analytics has been extensively used to track customer usage patterns in real time.

Creating systems and processes that are capable of sensing and reacting to real-time demand signals across the whole supply chain network has been a priority for many.

Technological advances have led to a dramatic increase in the processing speed and computing power to support the rapid sharing of valuable market trends though a mouse-click.

The cloud-based external data storage facilities which were at some point unavailable and cost prohibitive are now readily available at affordable prices. Supply chain professionals will find the appeal of an efficient predictive analytics difficult to resist especially as organizations try to cope with the demands of the extended supply chain networks.

Predictive analytics in demand management are therefore being welcomed as a wellspring of harnessing great performance, offering a new dawn with significant opportunities.

As part of the concluding remarks, the importance of demand management as a core value offering is undeniable and has been as true today as it ever was since the dawn of business.

Positioning demand management as a core value offering is understandable. With a promise so great, it seems only natural that demand management will continue to trend.

It’s continued use and success in supply chain management will serve as a visible reminder of its importance.

With technological advancement, the use of demand driven insights has never been more in reach than in today’s world.

Demand management will hold a lot of significance in determining the future growth of many organizations.

This holds true than corporate leaders care to admit.

The path to demand management excellence is not an easy one, but the signs are so promising. Maintaining a robust demand management system will not be a walk in the park.

There is need to devote time, effort and personal capital. It is a journey that is well worth taking.

The aggregate value potential is worthy of the effort. But the real value comes over time. Finding the right carrot can take some digging. But the rewards are well worth the effort.

The payoff can be substantial and is well worth the challenge.

Best practices of demand management have got the potential to convert customers into corporate assets. The big take-away is never to lose the mindshare of the customer.

The emergence of the time sensitive customer has taken the world by storm. As we are all aware, customers do not just buy items, they also buy expectations and convenience. An organization that masters the art of demand management therefore becomes the poster child for today’s concept of convenience, and they will remain perennial winners in the marketplace. The need to go that extra mile is important. Because after the extra mile, it is never crowded.