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Creating A Demand Driven Supply Chain Action Plan

By Bernard Milian

If you are an operational supply chain manager, you have a taste for action. Reacting quickly, making fast decisions, getting a small dose of adrenaline under stress: this is your daily life.

If you are an operational sales manager, you need to get things moving. Signing a deal, providing a decisive answer that leaves the competition out in the cold, launching a promotion that will work like a charm, getting a small dose of adrenaline under stress: that’s your forte.

Action is at the heart of our companies. It is an implicit value for managers, and even more so for management teams. To be inactive is to stand still and therefore fall behind, isn’t it?

In some of the management committees I used to participate in, this was exacerbated by gendered behavior: you must make more radical decisions, faster and stronger than your colleagues…

Staying Agile in a VUCA World

In a business environment that is increasingly uncertain and difficult to decode, is this culture of action beneficial? Can we formalize a supply chain action plan and decision-making processes to help us react to changes in demand? Otherwise, the risk is to act based on signals that are not explicit, and that we misinterpret. 

An ideal action plan would help us distinguish between the need to adapt — to ensure that the company is adapting to its changing environment and building an agile supply chain — and over-reacting to an epiphenomenon.

Overreaction is a reality in most companies. For example, in my operational and consulting experience, I have often been confronted with radical changes in production plans that are more closely linked to internal decisions than to a real evolution of external customer demand. In other words, we get caught in the middle by trying to act at all costs.

I’m sure you can find examples in your own company: we were super optimistic on the sales forecasts of the promotional campaign and now we have to slow down, we switched to 2×8 instead of 3×8 and we can’t keep up, we reduced/increased the stocks too much and we have to… etc.

During the first European lock down for Covid-19 I shared the Eli Goldratt video below with one of my clients. This company was about to shut down its main plant due to the sudden drop in activity, even though it had been chronically overloaded for months or even years, and its market was structurally strong. In this video Dr. Goldratt, urges us to take a holistic view of the system and the situation before making an informed decision.

Under short-term pressure, this company effectively shut down its industrial operations, and then found itself a couple of months later facing a very difficult situation of under-capacity due to a “faster and stronger than expected” recovery. Was this really unpredictable?

At the same time, it would have been difficult for its decision-makers to keep the production running; it would have gone against common sense or the majority opinion of the moment: business is falling, we must act! What shareholder would understand if we did not act?

Volatility Vs. Inertia

A paradox of our markets is that they are increasingly difficult to forecast, and at the same time there is a lot of inertia. If you’ve been a forecaster, you’ve probably experienced this. Your salespeople are forecasting significant changes in demand — changes that are driven by their sales and marketing actions. The reality is that these changes, in most markets, never happen so abruptly: customers have consumption habits, there are existing flows in the supply chain that go at a certain pace, there is structural continuity.

The reality of “sell out” demand signals often reflects great stability, or a progressive evolution. The challenge of demand-driven management is to boost supply chain agility by adapting to the evolution of this real demand, by autonomously propagating replenishment signals triggered by consumption. To adjust the company’s production rates to the market, in an autonomous and largely automatic way.

The DDMRP model integrates this: stabilization via a smoothed average daily consumption, model adapted only by exception, progressive adjustment of the model via closed adaptation loops, alignment of the teams on priorities and decision thresholds, and an autonomous and automatic replenishment model paced by real demand.

A Demand Driven Supply Chain Action Plan

As actors in a supply chain, our role is not to make decisions at will, because a good part of these decisions lead to distortion of the real demand signal. We are inflicting variability on ourselves. Our role is to implement a demand driven supply chain action plan — one that incorporates a relevant and progressive adaptation model, in line with the real dynamics of the markets we serve.

This change in perspective is not easy to adopt, and it often requires a shift in the mindset of our managers. A demand driven supply chain action plan requires:

  • Less focus on short-term action
  • More focus on a big picture view
  • Individual and team performance measures that support this

Intuitive supply chain management software — that provides broad visibility, promotes stability, and encourages action by exception — provides much-needed structure. But it’s not enough. After all, it’s “thoughtware before software,” as the Demand Driven Institute advocates.

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