Comment: The new rules of demand/supply integration
A critical factor in battling for consumer market share in today’s digital age is how well businesses can integrate demand and supply functions to achieve strategic goals. Real-time digital interactions with end consumers via social media, mobile apps, online ordering and other channels offer new opportunities to deliver marketing offers and shape demand.
They also present challenges for the supply chains working to meet that demand. Companies that implement demand/supply integration (DSI) can not only leverage these digital engagements to shape demand, but also better enable themselves to meet their business objectives.
True DSI is a cross-functional process for planning a go-to-market strategy by aligning marketing and promotions, supply chain and operations with business objectives. Simply put, DSI takes demand information and matches it up against supply capability and financial objectives to make both tactical and strategic decisions about what to do in the future.
Consider a quick-service restaurant scenario: if comparable same restaurant sales aren’t growing fast enough to reach revenue targets, DSI enables senior leadership to identify this shortfall, then use advanced analytics to develop an action plan that will drive demand. For example, a QSR could use machine learning to simulate the performance of a limited time offer on a sandwich, then execute on it by sending a push notification in its mobile app. The key though, is that such a plan would be implemented in tandem with the supply chain, to ensure the restaurant can meet the increased demand for the sandwich.
Longer term, digital engagement models will continue growing with new platforms and shifts in consumer preferences. That makes seamless coordination of DSI within an organisation all the more critical, especially for major, international companies that deal with perishable goods such as restaurants or food service providers. Yet, it would be misleading to suggest that such a process is easily implemented or maintained.
In fact, many organisations struggle with DSI implementation, often confusing it with sales and operations planning (S&OP). According to Dr. Mark Moon, global DSI expert and professor at the University of Tennessee’s Haslam College of Business, S&OP is a much more tactical process, focused on the short-term and often driven by the supply chain, whereas DSI is a long-term and ongoing process driven by senior leadership.
Other major barriers to successful DSI include organisational structure and company culture. For example, if a sales team’s only metric of success is revenue, they may actively pursue new customers even if the supply chain cannot support such growth. However, if the sales team is incentivised to integrate their forecasts with the rest of the business and align with overall strategic direction, senior leadership can prioritize supply chain development to meet higher demand forecasts.
A recent white paper from the University of Tennessee’s Global Supply Chain Institute, in collaboration with advanced supply chain analytics service provider HAVI, identified seven best practices for DSI implementation, based on an examination of 18 benchmark companies spanning consumer packaged goods, food and beverage, equipment, food service, physical distribution and 3PL services:
- Business-Led DSI
- Continuous Improvement Culture
- Demand Planning Excellence
- Digitally Enabled DSI
- Sustained DSI Mastery
- Focus on Business Intelligence
- Supply Planning Excellence
The two best practices most relevant to the digital engagements discussed earlier are demand planning excellence and digitally enabled DSI. Dr. Moon found that companies exhibit demand planning excellence through more disciplined forecasting processes, digital technology, advanced analytical service providers, leadership pursuing operational excellence and adopting a one-number-plan culture in which the success of all company functions is measured against one metric, rather than individual bonuses based on sales or throughput metrics. They excel at segmenting demand by channel, customer, category, market, etc., and such segmentation is made possible through the use of the advanced analytical tools found in digitally enabled DSI.
Technologies such as applied artificial intelligence, machine learning and virtual reality, combined with advanced planning systems are the keys to digitally enabled DSI. These tools allow companies to identify gaps in demand and supply forecasts, simulate future performance and make adjustments to close those gaps via digital engagements that will shape demand.
Dr. Moon emphasised the advanced nature of these best practices and encouraged companies – particularly supply chain leaders – to first establish basic yet effective DSI concepts, such as operating from a one-number business plan, and ensuring leadership takes ownership of the plans within the DSI process.
Starting small is okay too: HAVI has helped customers begin by setting up predictive analytics that forecast business levels in terms of unit sales and revenue, collecting data across supply chain and restaurant locations or even assessing correlations between promotion plans and their impact on revenue and margin.
The first step in implementing DSI though, is to recognise the opportunity that a DSI process represents: better enabling a company to meet its business objectives such as revenue, growth, margins, etc., by coordinating functions across the organisation.
Eric Pfeiffer, Sr. Director of Supply Chain Integration at HAVI, has more than 28 years of experience in integrating the world’s largest foodservice supply chains. In his current role, Eric leads engagement management for the product category strategists and the suppliers of those categories at key customers. He also leads the development and implementation of Business Planning services. He holds an MBA (Supply Chain) from North Central College. He is APICS Certified in Production and Inventory Management (CPIM) and is also certified in Change Management from PROSCI.
NTT DATA Services, Remodelling Supply Chains for Resilience
Joey Dean, the man with the coolest name ever and Managing Director in the healthcare consulting practice for NTT DATA and is focused on delivering workplace transformation and enabling the future workforce for healthcare providers. Dean also leads client innovation programs to enhance service delivery and business outcomes for clients.
The pandemic has shifted priorities and created opportunities to do things differently, and companies are now looking to build more resilient supply chains, none needed more urgently than those within the healthcare system. Dean shares with us how he feels they can get there.
A Multi-Vendor Sourcing Approach
“Healthcare systems cannot afford delays in the supply chain when there are lives at stake. Healthcare procurement teams are looking at multi-vendor sourcing strategies, stockpiling more inventory, and ways to use data and AI to have a predictive view into the future and drive greater efficiency.
“The priority should be to shore up procurement channels and re-evaluate inventory management norms, i.e. stockpiling for assurance. Health systems should take the opportunity to renegotiate with their current vendors and broaden the supplier channel. Through those efforts, work with suppliers that have greater geographic diversity and transparency around manufacturing data, process, and continuity plans,” says Dean.
But here ensues the never-ending battle of domestic vs global supply chains. As I see it, domestic sourcing limits the high-risk exposure related to offshore sourcing— Canada’s issue with importing the vaccine is a good example of that. So, of course, I had to ask, for lifesaving products, is building domestic capabilities an option that is being considered?
“Domestic supply chains are sparse or have a high dependence on overseas centres for parts and raw materials. There are measures being discussed from a legislative perspective to drive more domestic sourcing, and there will need to be a concerted effort by Western countries through a mix of investments and financial incentives,” Dean explains.
Wielding Big Tech for Better Outcomes
So, that’s a long way off. In the meantime, leveraging technology is another way to mitigate the risks that lie within global supply chains while decreasing costs and improving quality. Dean expands on the potential of blockchain and AI in the industry.
“Blockchain is particularly interesting in creating more transparency and visibility across all supply chain activities. Organisations can create a decentralised record of all transactions to track assets from production to delivery or use by end-user. This increased supply chain transparency provides more visibility to both buyers and suppliers to resolve disputes and build more trusting relationships. Another benefit is that the validation of data is more efficient to prioritise time on the delivery of goods and services to reduce cost and improve quality.
“Artificial Intelligence and Machine Learning (AI/ML) is another area where there’s incredible value in processing massive amounts of data to aggregate and normalise the data to produce proactive recommendations on actions to improve the speed and cost-efficiency of the supply chain.”
Evolving Procurement Models
From asking more of suppliers to beefing up stocks, Dean believes procurement models should be remodelled to favour resilience, mitigate risk and ensure the needs of the customer are kept in view.
“The bottom line is that healthcare systems are expecting more from their suppliers. While transactional approaches focused solely on price and transactions have been the norm, collaborative relationships, where the buyer and supplier establish mutual objectives and outcomes, drives a trusting and transparent relationship. Healthcare systems are also looking to multi-vendor strategies to mitigate risk, so it is imperative for suppliers to stand out and embrace evolving procurement models.
“Healthcare systems are looking at partners that can establish domestic centres for supplies to mitigate the risks of having ‘all of their eggs’ in overseas locations. Suppliers should look to perform a strategic evaluation review that includes a distribution network analysis and distribution footprint review to understand cost, service, flexibility, and risks. Included in that strategy should be a “voice of the customer” assessment to understand current pain points and needs of customers.”
“Healthcare supply chain leaders are re-evaluating the Just In Time (JIT) model with supplies delivered on a regular basis. The approach does not require an investment in infrastructure but leaves organisations open to risk of disruption. Having domestic centres and warehousing from suppliers gives healthcare systems the ability to have inventory on hand without having to invest in their own infrastructure. Also, in the spirit of transparency, having predictive views into inventory levels can help enable better decision making from both sides.”
But, again, I had to ask, what about the risks and associated costs that come with higher inventory levels, such as expired product if there isn’t fast enough turnover, tying up cash flow, warehousing and inventory management costs?
“In the current supply chain environment, it is advisable for buyers to carry an in-house inventory on a just-in-time basis, while suppliers take a just-in-case approach, preserving capacity for surges, retaining safety stock, and building rapid replenishment channels for restock. But the risk of expired product is very real. This could be curbed with better data intelligence and improved technology that could forecast surges and predictively automate future supply needs. In this way, ordering would be more data-driven and rationalised to align with anticipated surges. Further adoption of data and intelligence and will be crucial for modernised buying in the new normal.
These are tough tasks, so I asked Dean to speak to some of the challenges. Luckily, he’s a patient guy with a lot to say.
On managing stakeholders and ensuring alignment on priorities and objectives, Dean says, “In order for managing stakeholders to stay aligned on priorities, they’ll need more transparency and collaborative win-win business relationships in which both healthcare systems and medical device manufacturers are equally committed to each other’s success. On the healthcare side, they need to understand where parts and products are manufactured to perform more predictive data and analytics for forecasting and planning efforts. And the manufacturers should offer more data transparency which will result in better planning and forecasting to navigate the ebbs and flows and enable better decision-making by healthcare systems.
Due to the sensitive nature of the information being requested, the effort to increase visibility is typically met with a lot of reluctance and push back. Dean essentially puts the onus back on suppliers to get with the times. “Traditionally, the relationships between buyers and suppliers are transactional, based only on the transaction between the two parties: what is the supplier providing, at what cost, and for what length of time. The relationship begins and ends there. The tide is shifting, and buyers expect more from their suppliers, especially given what the pandemic exposed around the fragility of the supply chain. The suppliers that get ahead of this will not only reap the benefits of improved relationships, but they will be able to take action on insights derived from greater visibility to manage risks more effectively.”
He offers a final tip. “A first step in enabling a supply chain data exchange is to make sure partners and buyers are aware of the conditions throughout the supply chain based on real-time data to enable predictive views into delays and disruptions. With well understand data sets, both parties can respond more effectively and work together when disruptions occur.”
As for where supply chain is heading, Dean says, “Moving forward, we’ll continue to see a shift toward Robotic Process Automation (RPA), Artificial Intelligence (AI), and advanced analytics to optimise the supply chain. The pandemic, as it has done in many other industries, will accelerate the move to digital, with the benefits of improving efficiency, visibility, and error rate. AI can consume enormous amounts of data to drive real-time pattern detection and mitigate risk from global disruptive events.”