What is your primary goal as a supply chain professional? It’s not about demand sensing, demand shaping or even supply planning and demand planning. At the end of the day, it’s about profit optimization. Albeit important, demand sensing and shaping are only a piece of the equation and if isolated, decisions can be detrimental. You can manipulate demand and send it skyrocketing, but destroy your profits and your customer service. You can increase your supply and create a glut of inventory. You can improve your supply and demand of the “wrong” product and sub optimize your profits.
In a previous post I discussed the importance of demand sensing and shaping within the context of improving supply chain performance. With these activities, profit optimization is really the main objective.
Listed below are some key considerations for optimizing profits while utilizing demand sensing and shaping variables.
- How much does it cost to make each product … on each production line?
- What is the cost of procuring products?
- What are your transportation costs?
- What are your product’s key price points?
- What is your plant capacity?
- What are your lead-times?
- What is your competitive positioning?
- What are your storage costs?
- What are your promotion costs?
- What does it cost to change over a production line?
Answers to these questions drive profitability. The most important question may not be how to improve demand or how to improve supply. A more critical question is: How do I use supply and demand to optimize my profits?
Effective supply chain planning is driven from solving optimization problems. From that, you can develop plans, adjust supply levers, adjust demand levers (i.e. shape demand) and provide the best return for your company.
Two excellent white papers from SAS that provide supporting documentation are:
- Demand Shaping: Achieving and maintaining optimal supply-and-demand alignment by Vic Richard, Global Forecasting and Optimization Practice, SAS.
- Unlocking the Promise of Demand Shaping and Sensing Through Big Data Analytics: How to Apply High-Performance Analytics in Your Supply Chain by Jack Hymanson, Global Forecasting and Optimization Practice, SAS.