Daily Archives: March 5, 2008

Integrating Demand and Supply

It was nice to stumble upon an article in Industry Week that was published near the end of 2007 that tackled the subject of Demand and Supply Integration. It noted that companies are trapped in a pattern of reacting to the whims of the marketplace without developing a proactively designed supply capacity and that companies are often the victims of their own success — marketing programs that are not integrated with supply plans end up creating more demand than the company can fulfill. Thus, to create a more efficient and effective business model, companies must acknowledge that they need to integrate demand and supply systems.

The article notes that through close relationships that facilitate information sharing at the system level, demand and supply integration allows companies to serve end users better. What’s interesting is that it also goes so far as to note that managers cannot just focus on their own goals, but must focus on the goals of the larger organization as a whole. Furthermore, these goals should be derived within an integrated sales and operations planning (S&OP) process to facilitate systemic information sharing.

It also notes that companies with demand and supply integration are better prepared to respond to unforeseen supply chain events and gives the example of how Dell was able to quickly adapt to the 2003 California dock workers’ strike as an example. Since Dell operates lean, it only had a few days of product on hand. Airlifting goods is expensive, but it was their only option. In order to reduce transportation costs, it offered customers the opportunity to upgrade to flat screen monitors for “free” when they ordered a system with a standard CRT monitor. The individual sales weren’t as profitable for Dell as they were before (with the lost profit and added shipping cost), but they changed the market overnight – a move that their competitors weren’t prepared for, and they ended up taking some of their competitors’ business away.

It also notes that, for a company not on the path, moving to demand and supply integration can be a challenge. A company must shift its focus from product and supply to customer, market, and supply chain as this is required for strong customer integration.

the doctor has to admit, considering it was written by your ivory tower academics, that it was a rather good article. Plus, the doctor likes their acronym more than AMR’s. DSI has more prestige to it than DDSN. Maybe it’s because when the doctor thinks DDS, he thinks Data Dictionary System, but DSI also stands for Defense Security Intelligence. And what would you rather have – data, or intelligence? (Of course, you can have a lot of fun with DDSN, as the doctor did in this post.)