By Tom Pettit, senior VP & general manager, Ryder Supply Chain Solutions, firstname.lastname@example.org
Most of us remember the beloved film, “Field of Dreams.” In it, the raspy voice of a mysterious baseball announcer persuades an Iowa farmer to build a baseball diamond in his cornfield to entice the ghosts of a 1919 Chicago White Sox team to come back to play. He builds the diamond, the players come and so do fans, saving his farm at the 11th hour.
The “build it and they will come” mantra was wildly successful at the box office. However, when this philosophy is applied to the supply chain – not so much. Ten years ago, building a demand-driven supply chain meant sharpening your focus on cost control and responding to demand signals by stockpiling inventory and reducing costs. The outcome wasn’t surprising: inventory pileups and high carrying costs.
In today’s just-in-time world, success isn’t about building up inventory buffers. A successful, demand-driven supply chain is an agile one that responds to real customer demand, astutely synchronizing planning, procurement, production and inventory replenishment with real consumption and demand patterns.
With a demand-driven supply chain, every stakeholder in the network has access to real-time information about demand and inventory levels. Actual, rather than forecasted demand drives product movements. Supply chain partners have visibility into these movements and can respond to fluctuations in an instant. Inventory levels align with desired operating levels and issues surface well before they negatively impact production.
The result? Dramatically fewer delays/disruptions. Lower costs. And the flexibility to get products to market when, where and how customers want them. All with less worry about excess inventory, out-of-stocks, lost sales, poor capacity utilization or low service levels.
So what does it take to create a demand-driven supply chain? Let’s take a close look.
Ten components of a successful, demand-driven supply chain
Setting up a demand-driven supply chain takes a sophisticated technology infrastructure, smart data collection, aligned metrics and incentives, better management of costs and service tradeoffs and a recalibration of organizational and staff behavior. Here are 10 components of a successful demand-driven supply chain:
1. Line of sight. In other words, visibility: With access to real-time information on current demand and inventory levels, supply chain partners can react quickly and effectively to demand signals, revising forecasts or changing production and distribution schedules as needed.
2. The right infrastructure: By leveraging the latest technologies, supply chain partners can flex to meet short-term changes in supply and demand. Must-haves include a fast data-exchange platform that shares real-time inventory data among stakeholders, robust processing and data storage and automated processes.
3. Orchestrated movements: With tight coordination between supply chain partners so that they can execute flawlessly and cost-effectively, minimizing out-of-stocks or excess inventory, lost sales and the high cost of expediting orders. Financial and performance metrics are synchronized across the enterprise.
4. Optimized supply chain processes: By optimizing processes and performance, companies can strike a perfect balance between an exceptional customer experience and a healthy bottom line. This means considering cost-reduction efforts against their bottom-line impact of service levels, manufacturing flexibility and inventory levels.
5. Just-in-time inventory: Using product completion centers, products are packaged just before consumption, as close to retailers or distribution centers as feasible.
6. Real-time purchase data: Instead of carrying excess inventory, supply chain managers track cash register activity to pinpoint actual consumption patterns, building inventory based on purchase data compiled as consumers buy.
7. Delivery deadlines: Instead of addressing seasonal variance when it’s too late, develop an effective strategy to plan demand ahead of time. Provide trading partners with accurate demand data so they can meet your production capacities and delivery deadlines. Depending on your product and customer base, that might mean placing orders three, four, five and even six months out.
8. Product ownership: Find out how your customers want their products delivered and their preferred purchase terms. The answer will drive your supply chain decisions and processes. Customers may choose to take delivery at the origin port of export, destination port of entry or at a door delivery location. A vertically integrated retailer may want you to manage products from source to shelf, handling everything from procuring goods to navigating customs clearance, duties, air freight and truck delivery to the door. A more cost-conscious retailer may take ownership early in the supply chain and assume most of the risk. Either way, know how your customers want to buy and structure terms accordingly.
9. Reverse logistics: An efficient reverse logistics process is critical to streamlining recalls and returns, clearing inventories of overstocked, unwanted or damaged goods and redistributing goods to recapture value or properly dispose of them. By speeding the process of unboxing, testing, repackaging and returning items to stock, reverse logistics helps customers recover more product value, faster.
10. Lean culture that pulls inventory and resources based on consumer demand versus pushing the operation in one direction based solely on MRP/forecasting – preventing excess buffer inventory in the warehouse – removing waste and creating efficiencies. Employees are cross-trained on all standard processes allowing operations to ramp up quickly to respond to a change in demand signals
Ready to turn your supply chain into a streamlined, demand-driven model of efficiency rather than a field of dashed dreams?
Thomas F. Pettit is Ryder Supply Chain Solutions’ senior VP and general manager. He is responsible for leading the operations of Ryder’s supply chain industry groups, including Automotive & Industrial, Hi-Tech/Electronics, Consumer Packaged Goods, and Retail. Prior to Ryder, Pettit served as VP of global operations and supply chain for Pentair, Ltd. as well as VP, finance and operational transformations for ADC Telecommunications. He can be reached at email@example.com.