Hot off the SAP presses is a new white paper called Demand-Driven Supply Networks: Advancing Supply Chain Management (@ KnowledgeStorm, Registration Required) that notes that being “demand-driven” requires an instantaneous sensing of customer demand and an immediate supply chain response to get the product to the customer when the customer wants it and that the critical element is collaboration among partners in the supply chain. Furthermore, it notes that Demand Driven Supply is the next step in the advancement of supply chain philosophy and translates into real money on the bottom line. Specifically, according to customer studies, analyst comments, and industry polling, SAP determined that consumer products companies can
- increase fill rates by 3% to 10%
- increase production efficiencies 1% to 5%
- decrease freight costs 5% to 15%
- improve personnel productivity 7% to 12%
- reduce obsolescence and waste 35% to 50%
- reduce inventory levels 7% to 15%
- improve asset utilization 10% to 15%
- decrease cash-to-cash cycle 10% to 30%
- reduce deductions by increasing perfect order fill
- make better use of promotional funds based on more accurate information
- increase the effectiveness of product introductions (and phase outs)
No surprises, since this is more or less what AMR and Aberdeen have been preaching for years, but what is surprising is that SAP is not only embracing DDSN, but already has solutions that enable DDSN by combining existing technology, such as advanced planning and optimization, with the following capabilities:
- Dynamic Sales and Operations Planning (DS&OP)
- Global Data Synchronization
- Radio Frequency Identification (RFID)-enabled processes
- Point of sale-based analytics
- Integrated Trade Promotions Management
- Responsive Replenishment
- Multi-tiered collaboration and shared scorecards
- Adaptive Manufacturing
- Event Management
- Innovation and Design Collaboration
… and doing it while DDSN is still relatively early in its lifecycle. Considering SAP usually plays it safe and introduces new technology later on the innovation curve, this is a bit of bold move for SAP.
Although the paper does not cover anything that hasn’t been covered before, it does a good job of covering many of the key points. For instance, it notes that managers can respond proactively to deviations caused by internal and external events instead of spending their time gathering information, responding to problems, or preoccupied by ancillary tasks under demand driven supply. And more importantly, it notes that while manufacturers have always believed that long production runs lead to higher profitability, this is no longer the case since production runs that are theoretically less efficient may actually post a better ROI with DDSN because of the ability to shift manufacturing quickly to the most profitable products. Finally, DDS spans the entire consumer products supply chain and seamlessly connects all facets o the network. The future demand driven organization integrates all supply and demand elements to provide a seamless flow of real-time information to support valid decision making.
In addition to rehashing the definition of what DDS is, the SAP whitepaper also provides four steps that an organization can use to begin its journey.
standardize processes, data, and technology
- Advanced Planning
integrate key supply and demand elements including logistics, production, new-product introduction, and trade management, refine forecasting techniques, and implement advanced planning and scheduling based on optimization
- Increased Responsiveness
focus on the network by driving forecasting and visibility past the distribution center to the source of demand
refines the integrated network capabilities to adapt effectively and quickly to changes
These steps mesh will with our previous recommendations for each stage of the supply chain, which can each be classified as harmonization, advanced planning, increased responsiveness, or adaptability.
All in all, it’s a good introduction to demand driven supply and worth a quick read.
(Note: Parts I (An Introduction), II (Stages and Implications), and III (Challenges and Implementation) were posted on eSourcing Forum this past weekend.)