Demanding Times: Part One - A Best Practice Framework for Managing Demand
By Bill McBeath
on Aug 16, 2011
Demand management is not just about creating a better forecast (though that is critical). It is discovering new markets, creating a supply chain architected around your customers' needs, growing demand, and ultimately fulfilling demand and closing the loop with your customers.
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Achieving excellence in demand management—discovering, creating, growing, and fulfilling demand—is the core of market leadership. In the 90s, many saw APS systems and later CPFR as the ‘holy grail’ to solve forecasting and demand management problems. While these did result in some improvements, here we are more than a decade later and many companies have thrown up their hands, accepting poor forecast accuracies and trying to squeeze more execution improvements and lead-time reduction as the only way to improve demand management.
While those improvements are necessary, a few forward-thinking companies have been able to rise above the crowd, not just in better forecasting and execution, but across the whole process of generating, understanding, and fulfilling demand. Many of these next-generation demand management practices have not received widespread attention. We set out to discover those demand management practices that are already providing a competitive edge to a select few leading companies, then use that knowledge to provide specific recommendations for companies seeking to improve their performance. Through our research, ChainLink has developed a framework to help practitioners understand and implement the elements of successful demand management (see Figure 1).
Demand management excellence starts with discovering and developing new markets or new dimensions of existing markets. Market leaders excel at spotting the opportunities. They are obsessive about understanding their customers, markets, and all of the forces at work. They pour over demographics and economic data, absorb the views of pundits and experts (with a dose of healthy skepticism of course), mine social networks and blogs to discover and get in front of the latest trends. They have healthy discussions with their customers and within their own teams, and then formulate their own unique and bold view of where markets are heading, with a vision for their own market and product strategies to drive growth.
Create Supply Chains
The design of successful supply chains is totally driven to meeting the needs of the marketplace and the end customer.
Supply chain leaders excel at designing and implementing an optimal supply chain network that can fulfill their particular market and product vision. They design their supply chain to meet the needs of the marketplace and the end customer they serve. They also build deep, strategic relationships with suppliers and partners which enables them to become the best at responding to and fulfilling the needs of the market. In short, they aggressively pursue supply chain excellence as a competitive advantage in fulfilling the demands of their customers.
The leaders know how to accurately predict and vigorously grow demand. They effectively segment their markets and channels. They use price intelligently and are smart and effective about the design and execution of promotions. They know when and how to do consensus planning, and are able to continuously improve their predictions about demand. They constantly question and adapt their own assumptions about the market as they gain new intelligence and insights.
And finally, the leaders excel at fulfilling demand. Having already built a highly responsive supply chain, they use rapid response forecasting to quickly become aware of and adapt to near-term events without being fooled by one-time buys and other demand anomalies. They maintain vigilance and visibility at each step of the fulfillment process to promptly fix any issues or delays that arise, while keeping their customers fully appraised of progress. They achieve responsiveness and replenishment excellence to meet the demands of customers.
Specific Practices for Demand Excellence
In our research, we uncovered a set of specific practices that the leaders employed to give them an advantage:
Market Assumptions—developing a deep understanding of target markets and intelligently applying that understanding in shaping important strategy and execution decisions, in a timely manner.
Consensus planning and S&OP—efficiently getting the most out of collective knowledge and decision-making, coordinating demand and supply.
Lifecycle management—improving product transition performance through postponement, lead time reductions, initial buy techniques, and better communications.
Consumption-based forecasting—based on sell-through1 or point of sale data.
N-tier demand management—reaching beyond the immediate customer to read downstream demand signals to better understand and fulfill demand.
POS Demand Shaping—selling what you have, thereby reducing lost sales, markdowns, and obsolescence.
Risk Management—intelligently and effectively managing both demand and supply risk.
Demand Partitioning—selecting the best way to manage unique types of demand.
While no single company has mastered all of these, we found that those companies that excelled at even one or two of these areas realized very real and substantial performance advantages over their competitors. The remaining articles in this series examine these areas of next generation practice, starting with Part Two which looks more closely at the role of Market Assumptions in providing a foundation for effectively managing and growing demand.
1Sell-through = actual sales by your customer or channel, rather than their orders to you.
To view other articles from this issue of the brief, click here.