Gaining Competitive Advantage by Integrating Demand with Supply Planning

In an ideal world, every consumer’s intention to buy a product will be predicted in advance and fulfilled through a seamless and efficient supply chain and manufacturing operation. But in real world, consumers often find desired products out-of-stock and have to compromise with less desirable products. In short, a company who knows the art of getting right products in right place at the right time will be the clear winner and can emerge as a market leader.

Historically manufacturers were primarily focused only on supply planning and their main focus was to push products to the market but now they are equally focusing on demand planning as well. While both demand and supply planning can be done separately, but if we focus on integrating both types of planning as input to one another we can achieve a higher performance.

Lot of top notch management consulting companies (McKinsey, BCG, Accenture) are minting money by providing consulting services in the demand and supply planning integrations space. I took a case study from Accenture and decided to delve in to the same further. They have an end-to-end solution (Figure below) that encompasses critical components on both the sides besides that the companies can also handpick certain components in this model and choose to use other components as they were doing previously.

There are six major components of Accenture’s approach to integrate demand and supply planning and these six components collectively encompass all the capabilities needed to move the product from supplier to consumers.

·     Consumer sensing and response planning reflects what companies realized long ago that same type of product cannot satisfy all the customers. Let’s take example of Colgate toothpaste all the consumers don’t like mint based toothpaste so they diversified into fruit flavored tooth pastes as well. In order to understand the need of consumers companies have to analyze a lot of analytics and understand the requirement of consumers based on demographics, education, customs etc. and have to plan their response accordingly.

·     Demand side collaborative planning involves greater visibility to the downstream activity.  There are various well known approaches like collaborative planning, forecasting and replenishment (CPFR); co-managed planning; collaborative replenishment planning (CRP); and vendor managed inventory (VMI) which helps companies in the same.

·   Sales and operations planning this is the key integrator of the demand and supply planning which provides a platform to resolve demand and supply conflicts keeping in mind the business constraints and overall objectives. The main vision is to build a collaborative model that is robust and can be replicated easily.

·   Demand planning is a same traditional activity that involves statistical methods to forecast expected demand both internally and externally. This planning can be done weekly, monthly, quarterly or even yearly.

·  Supply chain planning depends upon a range of discrete but related capabilities like inventory optimization, capacity planning, material requirement planning, production planning etc.

·   Supply side collaborative planning helps companies to have well established processes, such as schedule sharing and vendor managed inventory programs that have helped in greater raw material availability and have reduced the overall cost.

Everything above seems pretty simple to all of you, In fact it is not that simple and involves a lot of resources to get the things done and still the companies have not been able to perfectly integrate demand and supply planning. Lot of planning still relies on observation and intuition.

At the end I feel supply chain consulting is a great place for MISMs to explore.

Further Readings:

http://www.utdallas.edu/~metin/FuJen/Folios/scaggregate_s.pdf

http://en.wikipedia.org/wiki/Supply_chain_management

References:

http://www.accenture.com/SiteCollectionDocuments/PDF/Accenture_High_Performance_Consumer_Goods_Integrating_Demand_Supply_Planning.pdf

http://www.accenture.com/us-en/Pages/service-consumer-goods-services-integrated-demand-supply-planning-summary.aspx

http://www2.microstrategy.com/download/files/Solutions/byDepartment/Supply_Chain/Supply_Demand.pdf