Our customers reduce inventories by over 30 % and increase service levels by 14 %-points on average using Demand-Driven Supply Chain Management
Why Conventional Supply Chain Planning is Broken
We all know it: Demand becomes ever more demanding, we have to ship more product variants in shorter lead times, suppliers are located around the globe, and so is the competition. It’s the VUCA world, where flows are disrupted by volatility, uncertainty, complexity, and ambiguity. Conventional planning, though, relies on forecasting: There is an S&OP cycle once a month where the forecast is fixed. In every following step, this forecast is never treated as what it really is – and educated guess at best – but as the truth. Supply planning and master production scheduling uses this “truth” as it is and add additional assumptions (about supplier lead times, machine efficiencies, transport durations) which are equally false. The result is a plan which is doomed to fail, and bad service despite high inventories.
What to do Instead With Demand-Driven
Demand-Driven deals with the VUCA world with two imperatives:
- Decouple the supply chain by introducing stock buffers. These are placed strategically to separate individual parts of the chain, thereby “disrupting disruptions” – see the figure below.
- Replace planning by configuration. Instead of planning the minutiae-based on a wrong forecast, use the forecast only to set up the supply chain in a way that it can cope with a broad set of (reasonable) scenarios. Then wait for (internal or external) demand to materialize and pull from the buffers. Base operational decisions on the actual buffer consumption.
Demand-Driven decoupling points stop the Bullwhip Effect
Why Should you Implement Demand-Driven?
- Demand-Driven is the tool for the VUCA world
It would be foolish to stop forecasting, as we need to prepare for the future. But it is equally foolish to base day-to-day decisions on a forecast. Use forecast for configuration only and base operational decisions on true demand instead.
- Demand-Driven handles the tradeoff between inventory and service better
As it is based on true demand, the supply chain focusses on what is actually sold at the moment. Consequently, better service is possible – at lower inventory and cost.
- It is a terrific starting point for supply chain digitization
Obviously, it makes little sense to digitize a supply chain which is in a bad shape and hope for the best. MRP and its cousins, which have been invented in the 50s, do not play very well with 21st century technology!
What is Your Next Step on the Road to a Demand-Driven Company?
Deloitte has already helped numerous customers across all industries to test and implement Demand Driven. We have seen that Demand-Driven cannot resolve the eternal conflict between inventory and service once and for all, but it can tip the scale in your favor – many Deloitte customers see inventory reductions and service improvements at the same time.
A natural first step is to assess the situation in your supply chain thoroughly. This way, we see where the potential benefits are possibly largest. The result is a proof-of-concept / proof-of-value. This is a quick and easy way for you to approach the world of Demand Driven – and a solid basis for you to decide about your further steps on your Demand Driven journey.