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.)

Chief Executive recently ran a great article that asked a great question – “are you going gray”? It noted that CEOs have a tremendous amount of power to control the gray market – the piracy that robs firms of profits, brand integrity, channel viability, and customer satisfaction. However, the same reasoning applies to CPOs as well.

The article noted that (a large) part of the reason that gray market piracy exists is the complexity of today’s operating environment. Global supply chains have complex pricing, distribution, control, and cross-functional coordination challenges. When managed poorly, these open the door to a number of opportunities that pirates can leverage to their advantage. In addition, poor network management allows members in an extended partner network to circumvent policy and pricing guidelines.

If you don’t put contract terms in place to prevent a customer from reselling your product to an unauthorized distributor, or you don’t insure that security is in place to prevent product from ending up in the wrong hands, then your new handsets destined for Australia could end up in Asia, as Motorola found out in 2006. Similarly, if your software is valuable, and you export it to a third party reproduction house for duplication without appropriate controls and liability clauses in place, you could find your product contributing to the over $40 Billion in legitimate IT products that move through the gray market each year.

However, you can significantly reduce the possibility of leakage by extending discipline over your supply chain and attacking the major drivers of gray market leakage: network partners with poor or unstable financial health, substandard manufacturer operating practices, and sloppy business models. Make sure the network partners you choose are financially stable and that your partnership will help maintain that stability; insure that your distributors agree to appropriate levels of price protection and stock balancing; and make sure that the number of tiers and hand-offs in the supply chain is minimized.

Be sure to implement and police company-initiated measures and process controls to minimize the possibility of supply chain leaks. Self-fund and enforce investigative measures and pursue remedies against all infringers through the courts. Build a reputation as a good corporate citizen – but one that should not be messed with nonetheless.