Supply chain management (SCM) has traditionally followed a siloed structure, making it difficult to account for all the trade-offs in supply and demand planning. Traditional supply chain design tends to be reactive and lacks the ability to sense, flex, and adapt, exposing the company to demand volatility. Conversely, modern day technology lets various teams share a holistic and integrated view of operations, which allows them to make plans based on achieving the greatest net value for the organization. This optimization of resources is what sets the leaders apart from the laggards.
As demand data becomes increasingly complex, many supply chain management methods are no longer sufficient to sense and adapt to the increase in demand volatility. Order data, which is typically used to project demand, carry sufficient latency to affect the accuracy of forecasts.
As a result, sales generation activities in many companies have become disconnected from the operational activities required to fulfill the demand. This results in conflicting objectives, operational inefficiencies, and missed opportunities. Such disconnection is considered by Peter Drucker to be one of the “great divides” in management, and the key reason that companies often find themselves stuck with selling products way below market rates or losing sales due to inventory shortages.
Why incorporate demand planning in supply chain management
As a response to the shortcomings of traditional supply chain management, more companies are recognizing the need to incorporate demand planning to help predict future demand patterns to respond more nimbly to changing customer needs. There’s an increasing need to sense market demand and quickly translate the requirements into supply chain responses.
A good example of this model is Zara — the “fast fashion” retailer that owes much of its success to its responsive SCM, which integrates retail signals into the decision-making process.
Companies need a holistic end-to-end process that takes into account organizational design, process design, and data governance to address trends including specialization, globalization, and regional demands. For instance, teams in regional markets will have the channel and process for sharing demand signals with the global team at corporate, so the data can be reflected in subsequent global programs.
Seven advantages of implementing integrated demand and supply planning
A system that integrates supply and demand management means a radical departure from traditional supply chain management models. It requires companies to redesign their systems to include demand management strategies, such as sensing channel demand, using optimization to actively shape demands, and applying advanced analytics to drive intelligent responses.
It could be a large undertaking to retool your supply chain management. However, the benefits will outweigh the initial investment:
1. Increased adaptability to demand volatility
By incorporating demand signals, an integrated demand and supply planning system allows companies to sense and respond to market demand in a way that’s hierarchical around products, time, geographies, channels, and attributes. In turn, the management of downstream data and integrated demand signal can contribute to improving the efficiency of the supply chain by shortening demand latency to help organizations forecast more accurately while improving forecast quality.
2. Improved value creation
The cross-functional structure that facilitates integrated demand and supply planning also helps organizations focus on customer-centric metrics that create higher value for both companies and customers. Instead of a “make what we can sell” approach, organizations adopt a “how best to serve each customer” mindset in which trade-offs are considered with a holistic approach that takes into account total costs relative to revenue potential.
3. Better external and internal collaboration
The integration of supply and demand planning means that managers have to collaborate more closely with both internal departments and external partners or vendors. Relationships with supply chain partners are elevated above buy-sell transactions to include joint coordination and planning, as well as a willingness to share both information and risk. This need for seamless collaboration often results in the adoption of technological solutions to improve the operational efficiency of the entire organization.
4. More efficient and strategic resource allocation
When managers consider both the supply and demand side, they’re able to understand the bigger picture and make better decisions on resource allocation. This creates the most value for customers, fulfills customer demands, and thereby generates more sales. This also helps the company make informed trade-off decisions, for example, something that doesn’t seem to make sense from an immediate functional perspective may ultimately help position the brand for a new consumer segment and expand market share.
5. Team empowerment
An organizational structure that supports an integrated demand and supply management implies that decisions made by executives not only affect their own units, but also the overall performance of the company. They’re empowered to make decisions with a wider impact that serve to maximize the overall value created for the company and its customers. This leads to the creation of new education and training systems that encourage collaboration, which is essential for the continuous growth of the organization.
6. Focus on profitability
The integration of demand management into the supply chain turns the focus onto customers and how their needs can be met profitably. This focus on profitability often leads organizations to streamline their processes and develop flexibility and fluid scheduling so they can respond to market fluctuations in a nimble manner.
7. Increased execution and operational efficiency
Comprehensive information on customer demand and profitability lets managers be proactive in their decision-making processes, making short-term decisions that help flex their operational capacity to maximize margins. Organizations can capitalize on market opportunities through a customer-centric lens and mobilize quickly to respond to changes in customer demands. Decisions can be made to prioritize key customers that generate the most profit.
Implementing integrated demand and supply planning
To integrate demand signals into your supply chain management, you need a solution that brings together input and insights from different teams in your organization and presents them on a centralized dashboard to improve visibility, transparency, and the ability to respond to market fluctuations quickly and accurately.
Vanguard Software’s cloud-based Integrated Business Planning (IBP) and forecasting platform is a model example. It allows demand and procurement teams to model and integrate data, forecast, collaborate, and report to maximize the impact of critical information and knowledge, which will ultimately increase profitability and operational efficiency of the entire organization.