SCM Strategy: Transition from forecast driven to demand driven

Today, when market volatility and turbulence has become the norm and customer expectations are on the rise, a fresh look at your supply chain strategy is like a doctor’s prescription for a symptom that can inflate your organization’s medical condition anytime. Without being more mystifying, let me come to the point of moving your organization from being forecast driven (be it make to stock or make to order) to demand driven. The reasons are clear, that we all are feeling pressure like never before to reduce the supply chain costing, the lead times, visibility and on top of all, want to improve our on time delivery for complete customer satisfaction and achievement of these business metrics can be improved vastly by moving towards demand driven manufacturing. It also helps to reduce the risk in the supply chain with the help of shared information between the constituents of supply chain.

We all are aware, that in the current century, supply chains compete with each other instead of organizations and there are some pressures and challenges in industry these days that force you to be more responsive and competitive in the market:

• Life cycle of services, product and technology are shortening
• Increased competition challenges forces more frequent product changes
• High levels of variants and product proliferation increase business risk
• Self imposed actions/processes lead to supply chain ‘chaos’
• Forecast-based management no longer viable as it increases inventory and does heavy filtering of real demand

Now is the time to forecast only for capacity and execution needs to be based on the real demand. If we bring the consumer at the start of the supply chain from being at the end and start focusing on more and more collaboration with our customers, our suppliers and our 3PL agents, we will be able to work on the base of real demand and not on the basis of forecast. Another reason for moving away from forecasts is that every constituent in the supply chain tends to build its own buffers and it leads to increased inventory at all levels and since all constituents have separate inventory, the overall visibility of total inflated inventory is low and extra working capital is engaged.

Moving to demand driven order fulfillment which is based on real time collaboration with your supply chain constituents, will ensure that there are no buffers as everyone works together and come to consensus on a single demand pattern which drives our order fulfillment and hence procurement, manufacturing and resource utilization. This will also deliver benefits like:

• Much reduced bullwhip effect in supply chain
• Optimized inventory at all levels
• Better availability and less stock outs
• Improved asset utilization
• Enhanced demand management

So, rethink your supply chain strategies and design them for the 21st century for better topline and bottomline.