Demand-driven supply chain example

The last step of the framework is to develop a supply chain strategy that will allow the company to identify the steps required to become a demand driven supply chain. This development should be performed aligned with the company strategic business planning process, as supply chain is a key enabler of business improvement and can help the company achieve top level business goals like revenue growth, increase asset utilization and profitability, improve customer service, just to name a few examples. 

In our discussion of cost visibility, we mapped activity costs for our example three-company supply chain (refer to Figure 27.3). A start to implementing the demand-driven supply chain is to repeat the process... 

Push and pull systems Production control systems are often described as push, where decisions are based on forecasts, or pull, where decisions are based on actual demand. A demand-driven supply chain is an example of a puU system. Many organizations try to move from push to pull decision making. 

In our discussion of cost visibility, we mapped activity costs for our example three-company supply chain (refer to Chapter 25). A start to implementing the demand-driven supply chain is to repeat the process, tracking lead time instead of cost. This map will identify supply chain delays and how to select the best approaches for implementing the demand-driven supply chain. Figure 26.7 displays the same supply chain with our companies. Process, Old Line, and High Tech, using time as a metric. 

Companies that receive goods at multiple distribution centers must also forecast demand at that level. This goes against the idea of the demand-driven supply chain, since each distribution center must make its own forecast. The practice adds to the inventory required to maintain a particular service level. Our description of "postponement" in Chapters 26 and 27 provided examples. Just as lack of commonality in design causes multiple line items that must be forecast, so does proliferation of stocking points. 

As the MEs may not to be competitive in producing functional products, most of the needs would be satisfied through imports. We call this the trade driven supply chain, shown in Fig. 7.2. For example in the apparel industry, products that are not fashion-sensitive are produced in the EE, usually in Asia, and imported in large volumes by retailers such as Wal-Mart. Manufacturers in EE obtain large production contracts with lead times of several months and therefore their exposure to demand side risk is negligible. However, they are exposed to a considerable supply side risk, discussed later. 

This example illustrates the benefit of thinking outside the box as defined by Industrial Chemicals and examining the root causes for order variation, i.e., the supply chain structure. But it also means moving to a bigger box, i.e., including more entities in the supply chain. The new perspective considers the link between demand variation and truck capacity driven by existing coordination agreements (backhaul discounts). The case shows the benefit... 

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