The image makes it look so simple; and, it sounds like it should be straightforward. It is not. What am I talking about? The concepts of becoming demand-driven...
It has been my passion for the past 12 years. For those of you that followed my work, you watched my struggle. I learned with each research project and with every writing assignment.
During my six years as an analyst at AMR Research, I completed research and wrote reports. My understanding at the beginning of my stint at AMR was vastly different than when I had finished writing over 500 reports and articles. Many are listed in Wikipedia. I am thankful for the opportunity. I was able to think deeply and to talk to thought leaders. It was a gift.
In 2009, AMR Research was purchased by Gartner. With the acquisition, I left, worked with another research firm, and finally in 2012 I founded a new analyst firm,Supply Chain Insights. During this time, I continued to research and to write about demand-driven concepts. This journey led me to pen three new books, and to have wonderful discussions with supply chain leaders at my Global Summit. However, over these ten years, my definitions of demand-driven have shifted:
  • Consumer-Driven Supply Networks: Defined by P&G in the 1990s as a shelf-driven, outside-in process defined by successful execution of the two moments of truth. (The two moments of truth are: Was the product in stock? Was the customer delighted?)
  • Demand-Driven Supply Networks: As defined by AMR Research in 2005: a supply chain that senses and translates market signals in real time.
  • Demand-driven Value Networks: As defined by AMR Research in 2007: A network that senses demand with minimal latency to drive a near-real time response to shape and translate demand.
  • Market-Driven Value Networks: As defined by Supply Chain Insights in 2010: an adaptive network focused on a value-based outcome that senses, translates, and orchestrates market changes (buy- and sell-side markets) bidirectionally, with near real-time data to align sell, deliver, make, and sourcing organizations, outside-in.
Demand-driven, as a term, is now vogue. It permeates presentations and journal articles. There are many charlatans that re-brand their efforts to be demand-driven to stimulate sales of technologies or consulting. I find these efforts to be self-serving. When I hear these presentations, I have a hard time controlling myself. I squirm in my seat. It makes me mad.
To help the situation, and to ground the discussion, I want to share twelve lessons on what I have learned:
  1. It Is a Top-down Journey. It is a journey: not a destination. The rate of the journey is based on the leader's vision and conviction .
  2. Focus on Outside-In Processes. The company is organized by function. Technologies and processes have evolved based on inside-out thinking. Because we could not get to timely customer data, supply chains used order and shipment data as demand signals. Your first step in building outside-in processes is to understand that the order does not represent true demand.
  3. Start with the Market. In building the demand-driven transformation, start with the market and collect multiple forms of demand data. Synchronize and harmonize the data for daily visibility. Ten years ago we could not get daily channel data. Today, we can for the majority of our accounts. (If you have distributors, start by setting the expectations for daily data sharing.) Today, with some work, companies can get channel data for 60% of their accounts.
  4. There Are Many Demand Signals. Synchronize and Harmonize. While many will tell me they want an integrated solution, I will caution that the data needs to be synchronized and harmonized to drive usage. If account data is not harmonized with other data for market share analysis, selling effectiveness and revenue management assessment, it is of limited value. Start slow. Learn the nuances of your data, and incent teams to use the channel data.
  5. Center the Organization on Independent Demand. Today's supply chains are based on dependent, not independent demand, signals. The original systems believed that if companies were good at forecasting, the forecast could be consumed and translated into material and finished goods requirements. The process of translation into dependent demand introduces noise and nervousness into a complex system. So, wherever possible, run the systems outside-in based on market data and market drivers.
  6. It Is a New Way of Thinking. It Is Hard. We have spent years and millions of dollars teaching companies how to speak the language of supply. The language of demand is new, requiring a new lexicon. Have courage. The transformation flies in the face of all of the wonderful best-practices that have been built.
  7. Learn and Speak a New Language. To be demand-driven, teams learn a new language, and a new way of thinking. They focus on demand latency and time for demand translation, and the accuracy and bias of the signals. The systems are developed to keep pace with demand probability and uncertainty.
  8. The Place to Start Is Not Forecasting. While traditional systems started with demand planning, the place to start a demand-driven journey is not demand forecasting. However, this does not mean that you do not need demand forecasting. Demand forecasting is a tactical signal designed to plan asset strategies, maintenance periods and seasonal launch. It is not a short-term planning tool.
  9. Design Value Networks to Sense and Respond. Traditional systems match singular ifs to singular thens. New forms of artificial intelligence allow us to test and learn while dynamically matching multiple ifs to multiple thens. It starts with sensing. Harness the Internet of Things and unstructured data to sense, and then design a flexible response.
  10. Demand-Driven Is Enabled through Horizontal Processes. For success, demand-driven processes are managed through the horizontal processes of revenue management, Sales and Operations Planning, and Supplier Development. These horizontal systems are cross-functional and help to define the trade-offs of the simple drawing I selected for this blog. The discussions need to be forward looking based on trade-offs. It is a complex, nonlinear system. Technologies can help, but only if people use them.
  11. Use Horizontal Processes to Orchestrate. The trade-offs between supply, demand, and price translate to product mix, assortment and go-to-market strategies. Build the processes and use the technologies to orchestrate bidirectionally market-to-market (from channel to supplier) in these horizontal processes. Challenge decisions to incorporate volume, product mix, and price as well as demand and supply.
  12. Embrace Independent Demand. The use of dependent data creates the bullwhip effect where demand data is distorted as it passes through the stages of the value-chain. Break this cycle and build processes that translate demand based on market signals.
Did I miss anything? With rising demand volatility, I think that it is important.