Becoming Demand Driven

Become Demand Driven.

Supply chains have historically focused on an internally-driven planning model. Demand forecasts were developed and internal capacities were aligned to the forecast. Execution was a well defined series of linear steps and the supply chain ran smoothly provided there were no unforeseen demand changes or supply disruptions. When changes did occur, they were both difficult to sense and often impossible to respond to.

Nowadays, the simple “plan-then-execute” operating model is no longer acceptable. To succeed, organizations needed to reinvent themselves. Internally-driven planning has to be replaced by market- driven execution. Actual customer demand, not forecasts, becomes the centre of the operating universe, around which all capacities — both internal and external — are aligned. While the original demand forecast remains a key step in the process, it must be complemented with real-time sensing of changes at the forward-most location and the ability to translate those changes into a fully- constrained operational plan that is both communicated and executed across the trading community.

The financial impact of the demand-driven transformation is immense. Based on extensive studies, AMR Research projects that a demand-driven company can generate the following results:

• 10% increase in revenue
• 5 – 7% increase in operating margin
• 15% decrease in inventories
• 35% decrease in order-to-cash cycle

I would be very interested to hear your opinions on this.