The global marketplace has been volatile, fragmented, and dynamic and is predicted to continue. Subsequently, supply processes have become more mature than demand as industries focused on operational excellence over the past two decades. As a result, there is a larger gap to fill in the redefinition of demand processes to be market-driven than in any other area of the supply chain based on our interviews with 75 executives. To become market-driven, companies need to identify the right market signals, build sensing capabilities, define demand-shaping processes, and effectively translate those demand signals to create a more effective response. This new market-driven approach makes the 30 years of technology and process thinking by the first and second generation supply chain global pioneers obsolete.
Demand management processes are challenging. They are more difficult to get right than supply. Analytic talent is scarce and the processes are still evolving due to lack of investment and focus. In addition, organizationally most demand processes are fraught with political issues--demand processes are normally more politically charged than supply. As a result, many companies often want to throw in the towel. They want to forget demand completely and only focus on the redesign of supply processes to become more reliable, resilient, and agile. The list of possible projects is long and often includes lean manufacturing, cycle time reduction, order management, or the redefinition of distribution center flows. However, focusing only on supply has shown limited results. Supply centric approaches tend to impact business complexity. It cannot improve the potential of the supply chain as a complex system. Working supply processes in isolation to demand have proven to drive up costs, increase working capital, and reduce asset utilization.
The secret to building supply chain excellence is to build the right stuff in the demand management processes. Improvements in demand management will give the supply chain the right foundation to make effective trade-offs against the supply chain. However, the development of a demand management strategy is easier said than done. Demand management systems were designed for the supply chains of the 1990s when there was less complexity. Over the past decade, supply chains have become more complex because of consolidation through acquisition and globalization. Unfortunately, the evolution of demand management practices has not kept pace with the business needs. Historic approaches to demand management are not up to the task. As a result, companies are coming to the realization that the demand management process requires a complete reengineering with an outward-in orientation. The process needs to focus on identifying market opportunities and leveraging internal sales and marketing programs to influence customers to purchase the company’s products and services. It requires a champion—an organizational leader—to orchestrate the change management requirements of the market-driven value network.
This gap in demand processes is the highest priority area for supply chain leaders to close in the next two years. Figure 1.1 indicates the importance of this priority.
The journey will require outside-in thinking and focus on identifying the market signals and translating them into the drivers of demand. Market-driven forecasts focus on accurately predicting what customers will buy. This is in sharp contrast with the traditional demand processes that determine what companies will manufacture or ship. The input signals are from the market. There are many possible inputs: sales promotions, marketing events, seasonal response, pricing strategies, and/or competitive pressures.
Those companies who learn how to become market-driven will have mapped their available demand signals and designed how to use them from an outside-in perspective. Their demand management process will forecast with that goal in mind. Market-Driven companies will evaluate the fit of their demand models and statistical engines building demand sensing and shaping capabilities.
Read about Charles Chase's new book Bricks Matter: The Role of Supply Chains in Building Market-Driven Differentiation with coauthor Lora Cecere.
