A Demand-driven Supply Chain (DDSC) is defined as a supply chain management method focused on building supply chains in response to demand signals. The main force of DDSC is that it is driven by customer demand. In comparison with the traditional supply chain, DDSC uses the pull (Demand pull) technique. It gives the market opportunities to share more information and to collaborate with others in the supply chain.
A Demand-Driven Supply Chain is dependent on aligning all entities across the supply chain through information flows. A true DDSC can always adapt to the changing market conditions thereby maintaining or reducing inventory levels and reduce the invasive problem of expedited orders.
“Demand-driven logistics has not yet been widely adopted,” says Jaris Briski, senior vice president of business development and parcel at GENCO, a Pittsburgh-based third-party logistics (3PL) provider. “Shippers may manage only certain subsets of inbound materials procurement.”
Without a true demand-driven vibe coursing through the supply chain, shippers are likely to adapt parts, rather than optimize the whole. Companies struggle when siloed functions aren’t in sync a lack of alignment creates slack in the form of additional inventory, time, and cost.
Most companies successfully manage outbound transportation and distribution processes, largely because they directly impact the end customer. When something goes awry, there is an immediate and obvious consequence. With a demand-driven logistics approach, impacts are more subtle, and build gradually over the entire order cycle. That’s why it requires a holistic perspective, and often a paradigm shift within the organization one that likely doesn’t occur without executive mandate or a push from 3PLs.
The Power of pull
“Sometimes the ability to successfully run a demand-driven operation depends on whether a strong enough stake exists within the enterprise to control the inbound supply line,” says Briski. “If the top of the organization isn’t interested in inbound logistics or procurement, it becomes a moot point. Once you get past that obstacle, it comes down to having the technology to evaluate how best to create visibility and control.”
Transportation is an obvious flash point for companies that struggle with supply chain visibility, simply because transport costs have a tendency to creep. By contrast, when shippers are able to accurately forecast demand farther out, they have more flexibility to mix and match transportation options to meet their need.
For shippers and consignees sourcing globally, failing to communicate with upstream partners can create any number of inefficiencies and costs. That’s why companies are driven to reach deeper into the supply chain and work more closely with suppliers and manufacturers to fine-tune production systems and make sure they are in lockstep with downstream processes.
Briski compares this disposition to how suppliers might interact with customers. “Suppliers should be aware of, and intimately clued into, customer needs,” he says. “Then they can take a mirror-image approach upstream with their suppliers to achieve the most effective and confident supply chain.”
When consignees and suppliers achieve this level of collaboration, they are better positioned to decide who should manage transportation and control cost. This is where a 3PL’s objectivity and expertise can help push value even further.
For example, if a company is purchasing a high volume of product from a supplier, and that supplier is fulfilling 10 purchase orders, it may not know how to sequence those shipments. GENCO has had success bridging that gap by taking the real-time signal from the customer, and coordinating transportation so that orders are properly sequenced in order of priority.
In a similar fashion, Waltham, Mass.-based 3PL ModusLink Global Solutions has helped engineer demand-driven solutions for high-tech shippers that allow them to better manage short lifecycles in a competitive environment.
Offshore manufacturing is a normal course of business for many high-tech companies. As supplier networks become more complex, shippers are challenged with managing inventory levels.
Traditionally, high-tech shippers might wait for product to fill a container before shipping it, which often triggers a swell of inventory in the system. As they seek to reduce total costs, that model is changing.
Looking at the Little Picture
“There has been growth in consolidation hubs in China and Hong Kong, located at ports closer to the point of origin,” says Eoghan Dillon, supply chain solutions manager at ModusLink. “Companies are taking smaller quantities from each of their suppliers, consolidating them into containers, then shipping.”
In effect, shippers are following a “little-and-often” approach that is predicated on point-of-origin collaboration and consolidation to move smaller quantities more frequently, as needed. Such an approach eliminates large minimum order quantity constraints, and reduces total inventory within the system.
It’s a more sophisticated play that challenges the way companies manage their supply chains. It tears down operational walls, because ordering smaller quantities from suppliers often requires process changes and/or incurs higher costs. Shippers have to be able to see the bigger picture to recognize the total impact.
“Purchasing managers want large volumes of product at the lowest cost,” says Dillon. “But that increases supply chain inventory. Demand-driven logistics, in contrast, aims to reduce inventory.”
Shipping smaller order quantities directly impacts transportation. “Instead of shipping full containers of one particular product or from one particular supplier, companies need to consider sharing containers and consolidating mixed loads,” Dillon explains.
That’s why collaboration is the essence of demand-driven logistics. Success requires different operational functions to work together. With greater visibility downstream and upstream, organizations can align and orchestrate their supply chains around this common goal.
Even on a smaller scale and at the local level, demand-driven logistics pays dividends. When Dublin, Ga.-based SP Fiber Technologies, a producer of high-quality newsprint and paperboard, partnered with RVCii two years ago, it was looking for a 3PL that could build, then execute a new purchase order (PO) management system.
The processor operates two mills located in Dublin and Newberg, Ore. That produce more than one million tons of product annually, half of which is recycled. Because it’s a commodity-driven business, managing transportation costs is critical to the bottom line.
To become demand-driven, companies must consider three actions:
Leverage real-time data. Data is key to providing valuable insights into what is working in the supply chain and what can be improved. Analyzing data in real time can help answer the most critical question: ‘What do I do now?’ Dynamic real-time optimization of the supply chain enables companies to use data to make rapid decisions and create actionable plans by taking all aspects into account.
For example, a same-day grocery delivery service may have extra delivery trucks on standby, ready for an influx of orders, to ensure it meets ad-hoc demand and delivery timeframes. Or alternatively it tries to ‘box’ its delivery schedules with large time windows to allow more perceived flexibility. This model is not sustainable.
What if the company’s supply chain was optimized to handle random ad-hoc same-day orders, completing all the deliveries with fewer trucks within accurate time windows? Leveraging data with dynamic real-time optimization, companies can consider all factors and determine what truck should take new deliveries while also keeping the rest of its previously scheduled orders on time.
Optimize staff. Having the right person at the right time is crucial for employers. Many organizations often understaff, overstaff, or assign one person to a task when another is better suited, impacting productivity and customer service.
Just as a company may overbuy delivery trucks to have on hand for surge times, it also tends to have more employees than necessary for the same reason.
Companies can do more with fewer employees if they properly identify the inefficiencies and constraints. With interruptions to staff availability, changing shift schedules and demand, as well as regulatory and operational constraints happening each day, businesses must be able to quickly adapt. Resource optimization can adjust accordingly and also take into consideration issues such as required breaks, logical shift planning, and who can best cover when an employee calls in sick.
Prepare for disruptions. Being able to adapt to any disruption keeps a business operating smoothly and efficiently. No matter the size of the disruption, the financial impact can be severe for a company with a supply chain that isn’t optimized and prepared to react in real time.
The key is making the supply chain nimble and able to react quickly with an actionable plan when (not if) a disruption occurs mitigating as much risk and financial loss as possible.