Ironies in the supply chain

18/12/2013

Supply chain shaman has listed five ironies that she sees in business, most of which relate to the inability of big business to see the good it can do. From slow payments, which harm suppliers, to lack of customer service, she bemoans companies which opt for short term benefits over longer term value.

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simon eagle
January 07, 2014 at 12:01 pm
One of the current biggest SC ironies is that despite all the talk of demand driven supply chains, 95% of companies outside of grocery/automotive still drive replenishment using forecasts – which are a prediction of demand and always wrong! The consequence is excessive levels of cost in the form of buffer (capacity, stock and late deliveries) due to the forecast error induced supply chain volatility (it used to be called bullwhip).

And many global blue chips are, at this very moment, planning implementation of ERP systems which will be configured alongside forecast push planning and replenishment systems – and like all those who have done this in the past will be wondering why they haven’t seen any benefits in 5-10 years time.

Real demand driven supply chains, even in make to stock environments, use true demand signals either via MTO/ATO or via multi echelon re-order point/cycle. Software is obviously needed and is available vis ‘cloud’ or SaaS’. When implemented it has helped achieve desired service levels with significantly reduced stock levels and taken out 20% of COGs through increased capacity utilisation. Those who have done done it don’t publicise the fact because they’re too busy enjoying the competitive advantage!

The only people who don’t benefit are the traditional forecast push software houses who have done their best to confuse the market with talk of demand planning and demand management when they meant forecast push.

If you really want to be demand driven your software provider needs to be talking about these ‘demand driven’ principles – consumption based replenishment / demand pull / buffer management / demand segmentation. They should also be able to explain the rationale for ‘demand driven’ in terms of Factory Physics or TOC and will have a thorough understanding of all things Lean.

Happy New Year!

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