You have implemented all or part of the Demand Driven operating model to drive your operations, so you should be prepared to deal with situations of uncertainty.
However, the current period presents an unprecedented level of disruption.
Your factories, suppliers or customers may be at a standstill or extremely slow. Perhaps, on the contrary, you are facing exceptional demand and overheating because you operate in the health sector.
One thing is certain: the bullwhip effect is already at work, and will continue at an extreme level in the coming months, which can be devastating.
What practices should be recommended in the short term to make the best use of your demand-driven operating model? What lessons can be learned to improve your model in the future?
The intention of this post is to give some leads, but it does not pretend to be exhaustive – its author has never been confronted with such a situation and does not hold the solutions. So do not hesitate to react and contribute to the edifice so that we can all learn together.
Exploit relative priorities
There is a high risk that you will either not be able to meet all the demand or that you will need to get ahead of what your customers demand in the short term. DDMRP allows you to identify relative priorities and to manage situations of shortage or excess in the most balanced way possible.
Monitor and challenge demand spikes
More than ever, we are currently seeing exceptional one-off requests, and not just for toilet paper… Analyze the peaks in demand that you see and don’t hesitate to question them! You risk shipping your strategic stocks to a customer who is afraid of running out, but who will end up overstocked and won’t order anything from you for a long time.
Perhaps you have with your B2B customers minimum orders that generate significant one-off demands. For example, you deliver to distributors who order once a month, or your sales representatives offer discounts for orders above a certain threshold. The last thing you want right now is to deal with inappropriate one-off requests – maybe it’s time to temporarily offer more frequent shipments in smaller batches.
If you have set up a vendor managed inventory with your customers (VMI) and you have visibility on their stocks and their actual consumption, you will be able to manage this phase as closely as possible. Not yet in VMI? Think about it for the future!
Manage planning priorities and execution alerts with even more discipline on a day-to-day basis.
The variability of supply and demand is extreme. More than ever, implement operational discipline on a daily rather than weekly basis. Monitor your time buffers in the workshop at least once per shift. Handle all exceptions in a disciplined manner.
Adjust the calculation of your ADU
Your operating model includes a method for calculating average daily usage to size your buffers. There is a strong risk that the demand element that is used for your replenishment loops sizing is more uncertain than ever, and that the calculation mechanics are temporarily unsuitable.
If, for example, you calculate all or part of your ADU on recent shipment history, and your shipments are very low or even interrupted, your buffers will decrease too much.
You should therefore re-evaluate your ADU calculation method to get to the least bad estimate of demand applicable today.
Remember one thing: the demand driver in the market, the real needs of end consumers, should not change very much once the crisis is over. These changes over the medium term should only be a few %, maybe for example -5 or -10%. We will continue to eat, wash, take care of ourselves, or consume high-tech products.
If you calculate your ADU on history, extend your horizon to smooth the effects. You can also exclude a period that you feel is too disturbed. If you include forecasts, make sure that your forecasters are working more than ever on end consumption information (sell out), and on an aggregated level.
Spoiler: your ADU will be wrong, and probably worse than usual. It may be appropriate to increase your red zones by temporarily increasing the variability factors.
Evaluate the scenarios in your DD S&OP
All your existing forecasts and S&OP have just been blown up. The future is totally uncertain. All you can do is establish a series of scenarios – optimistic, pessimistic – with your teams in contact with the market. Evaluate the impact of these scenarios on your projected buffers and the workload on your control points with your DD S&OP module (Replenishment+ APM).
Decide on capacity and buffer adjustments and apply them through the planned adjustment factors.
Anticipate but don’t decide too early.
Adapt your buffers according to DD S&OP scenarios and implement a closer than usual monitoring process. Use the analytics of your operating model to detect significant imbalances and deviations. Your Tactical Reconciliation team may need to conduct a review weekly rather than monthly.
Don’t hesitate to reduce your green zones for more frequent adaptation, as well as your decoupled deadlines when they reflect a firm planning time fence. The more frequently and as close as possible to the actual demand, the better you will adapt.
Put the flow at the center of the game, fight against short term cost reductions!
We are already seeing drastic decisions, particularly in large corporations: freezing or cancelling all projects, stopping all temporary workers, preparing redundancy plans, etc.
There is no doubt that this crisis will have an economic impact and put the cash flow of several companies under stress, and conservatory measures must be taken.
Let’s not forget that flow is core to the company’s sustainability and its adaptation to the next turbulences. Make sure that it remains at the heart of management decisions, at a time when cost reduction will be the alpha and omega of some. The Adaptive S&OP process will help you if you have it in place.
And above all, prepare for the future. If you’ve started your Demand Driven transformation, accelerate it, because the speed of change in your environment is accelerating.
If you have not yet embarked on this transformation and are still in a forecast-driven model, it is more than urgent to redesign your supply chain to make it agile and resilient!
To learn more, visit the Demand Driven Technologies website.