Demand Chain Management
Demand-chain management (DCM) is the management of relationships between suppliers and customers to deliver the best value to the customer at the least cost to the demand chain as a whole. Demand-chain management is similar to supply-chain management but with special regard to the customers.
Demand Chain Management software tools bridge the gap between the customer-relationship management and the supply-chain management. The organization’s supply chain processes are managed to deliver best value according to the demand of the customers. DCM creates strategic assets for the firm in terms of the overall value creation as it enables the firm to implement and integrate marketing and supply chain management (SCM) strategies that improve its overall performance. A study of the university in Wageningen (the Netherlands) sees DCM as an extension of supply chain management, due to its incorporation of the market-orientation perspective on its concept.
A Demand-driven supply network (DDSN) is one method of supply-chain management which involves building supply chains in response to demand signals. The main force of DDSN is that it is driven by customers demand. In comparison with the traditional supply chain, DDSN uses the pull technique. It gives DDSN market opportunities to share more information and to collaborate with others in the supply chain.
DDSN uses a capability model that consist of four levels. The first level is Reacting, the second level is Anticipating, the third level is Collaborating and the last level is Orchestrating. The first two levels focus on the internal supply chain while the last two levels concentrate on external relations throughout the Extended Enterprise.
In a demand-driven chain, a customer activates the flow by ordering from the retailer, who reorders from the wholesaler, who reorders from the manufacturer, who reorders raw materials from suppliers. Orders flow backward, up the chain, in this structure.
Many companies are trying to shift from a build-to-forecast to a build-to-order discipline. The property of being demand-driven is one of degree: Being “0 percent” demand-driven means all production/inventory decisions are based on forecasts, and so, all products available for sale to the end user is there by virtue of a forecast. This could be the case of fashion goods, where the designer may not know how buyers will react to a new design, or the beverage industry, where products are produced based on a given forecast. A “100 percent” demand-driven is one in which the order is received before production begins. The commercial aircraft industry match to this description. In most cases, no production occurs until the order is received.
To create sustainable competitive advantages with DDSN, companies have to do deal with three conditions:
- Alignment (create shared incentives)
- Agility (respond quickly to short-term change)
- Adaptability (adjust design of the supply chain)
There are five commonly-made misconceptions of demand driven (DDSN):
Companies might think they are demand driven because they have a good forecast of their company.
- They have implemented lean manufacturing.
- They have great data on all their customers.
- They think it is a technology project and the corporate forecast is a demand visibility signal.
- They have a better view of customers demand.
An important component of DDSN is DDM (“real-time” demand driven manufacturing). DDM gives customers the opportunity to say what they want, where and when.
Demand Driven execution
Demand-chain management is the same as supply chain management, but with emphasis on consumer pull vs. supplier push. The demand chain begins with customers, then funnels through any resellers, distributors, and other business partners who help sell the company’s products and services. The demand chain includes both direct and indirect sales forces. Customers demand is hard to detect because out of stock situations (OOS) falsify data collected from POS-Terminals. According to studies of Corsten/Gruen (2002, 2008) the OOS-rate is about 8%. For products under sales promotion OOS rates up to 30% exist. Reliable information about demand is necessary for DCM therefore lowering OOS is a main factor for successful DCM.
Corsten and Gruen describe key factors for lowering OOS-rates:
- Data accuracy
- Forecast and order accuracy
- Order quantity
- Capacity (time supply)
- Capacity (Packout) and Planogram Compliance
- Shelf Replenishment