The world is becoming increasingly customer-centric and consumers are becoming more and more demanding. This is supported by rapid advancement of technology. The 4th Industrial revolution is no longer a futurist dream, it is here all around us and we need to be able to adapt to meet these demands with factories firmly rooted in the 3rd industrial world. We need to be able to adapt the way we do business in these factories to suit the customer-centric economy.
Demand planning in the traditional sense where is based purely on forecast is a thing of the past. We can spend huge sums of money perfecting statistical techniques to refine forecasts, or even use AI for modelling purposes. This will never get as accurate as simply using consumer demand as the trigger for our replenishment models. Having said this, forecasts are still important in the long and medium term ranges.
S&OP, is an important tool in this regard, but again we need to stand back and look how it has been employed in industry. S&OP has become a Supply Chain tool, forced into the operational sphere, where it’s role should be in the strategic and tactical spheres of business. Business executives have delegated the responsibility of S&OP to the operational level, where the window is between 3 – 6 months into the future. This is far too late for anyone to react to strategic or even tactical changes has also resulted in the forecasts becoming a secondary priority for marketing and sales teams.
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This needs to change urgently. S&OP needs to start at the executive level where they focus on the strategic vision for the organization. This should have a window that at least equals the time it takes to develop a new product and to bring it to market. The tactical S&OP that is managed cross functionally by the heads of department, and overlaps to an extent with the strategic S&OP takes the strategic vision to the tactical level, setting out plans of action. These plans of action are then translated to the operational sphere, which also overlaps with the tactical sphere, where they become reality. By following this methodology, there is automatically alignment between the organizational strategy and the different departments in the value chain. (breaking down of silos)
In demand driven methodology, the information generated through the process described above is used with lead times, to generate the buffers and buffer zones that are correctly sized to suit Customer demand. This stabilizes demand variability providing the value chain with stable information and accurate lead times they can deliver against. The methodology, using the net flow equation that functions within the buffers, translates customer / consumer activity into Supplier demand through each of the decoupled lead times and their supporting buffers that act as shock absorbers to minimise variability and the amplification of the bull whip effect.
Customer lead time, is now only as long as the final decoupled lead time, which is supported by the buffer in the finished goods warehouse for Stocked items or at sub assembly or intermediate level for make to order. This reduction in delivery times will set companies apart from the competition, and also opens a number of new business opportunities for the value chain in their relationships with both Suppliers and Customers.
Should you have any questions or comments, please raise them in the comments section or email to firstname.lastname@example.org. You can also call me on +27 82 777 0922.
About the author
Dave Hudson is a supply chain and operations specialist and executive coach with over 30 years’ experience, and currently 1 of 5 endorsed Demand Driven instructors on the African continent.