Demand Chain Management

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Demand Chain Management

  1. 1. DEMAND CHAIN MANAGEMENT Presented By: Kimberly Kokenakes, Senior Purchasing Agent, Michigan State University Nancy Blomfield, Accountant, Michigan State University
  2. 2. Critical questions <ul><li>What is Demand Chain Management? </li></ul><ul><li>How does it differ from traditional Supply Chain Management? </li></ul><ul><li>Who does Demand Chain Management Impact? </li></ul><ul><li>How does it improve the procurement and payment processes? </li></ul><ul><li>Why the shift? </li></ul>
  3. 3. What is Demand Chain Management? <ul><li>Demand Chain Management is a shift in procurement strategy from a stance of reactive to proactive. </li></ul><ul><li>It is a shift from processing paperwork to proactively negotiating strategic agreements on behalf of the organization in anticipation of needs based on feedback from users, historic data, organizational data. </li></ul><ul><li>It is about developing strong working relationships with end users, Logistics staff, Accounts Payable staff, and Suppliers to ensure that organizational needs are met on a cost effective, timely basis. </li></ul>
  4. 4. Philosophy Shift <ul><li>Demand Chain Management is about breaking down the barriers via a philosophy shift from a “silo” driven, territorial, “not my department” approach to one of a holistic, strategic, solution driven philosophy. </li></ul><ul><li>How is this achieved?.......Through partnerships. It is all about garnering trust, following through, and being creative in breaking down existing barriers. </li></ul>
  5. 5. How is this achieved? <ul><li>Get out there! Go visit your users and the individuals you are buying for. See their work environment, the limitations they face, meet with them regularly to follow up on issues, resolution, future needs. </li></ul><ul><li>Listen. Your users and partner areas such as Accounts Payable, Central Distribution, Warehousing, as well as Suppliers can provide you with a wealth of information, if you let them. </li></ul><ul><li>Be creative. Look for creative, strategic solutions to potential problems, talk with the users and get feedback, think outside of the norm. Don’t be afraid to do things differently than they have always been done. </li></ul><ul><li>Partner and Network with your end users, your counterparts in Accounts Payable, Central Distribution, Warehousing and in your supply network, build relationships based upon mutual understandings and common goals. </li></ul>
  6. 6. Demand Chain Management v. Supply Chain Management <ul><li>The primary difference between demand chain management and supply chain management is the driver. The focus is moved from a transactional approach to a strategic approach. </li></ul><ul><li>Rather than being in a reactive mode of responding to a request, Demand Chain Management is about working with people upstream and downstream to find the best means for meeting the organization’s needs on a strategic basis. </li></ul><ul><li>Demand Chain Management is all about collaboration and information sharing, which is often not easy in today’s world where people are often expected to produce optimal results with limited resources. </li></ul><ul><li>Demand Chain Management often results in process and cost savings to the organization as well as improved relations across units. </li></ul>
  7. 7. Who does Demand Chain Management Impact? <ul><li>Typically everyone along the procurement/distribution/payment continuum. </li></ul><ul><li>Ideally the impact is positive for all parties and can include: greater understanding of organizational needs, a better process for the user, buyer, supplier, accounts payable staff; improved communication and improved responsiveness. All of this should result in reduced costs to the organization. </li></ul>
  8. 8. Who does Demand Chain Management Impact? <ul><li>For the User , they have the benefit of a Procurement specialist who is intimately familiar with their needs and their organization who can negotiate a better contract on their behalf. </li></ul><ul><li>For The Procurement Individual , it results in a reduction in transactional business and allows them time to develop better contracts, to improve on existing contracts, and is a shift from processing purchase orders to managing their resultant strategic contracts on behalf of the organization. </li></ul><ul><li>For the Supplier , it increases their ability to meet their contractual requirements as the increased communication both upstream and downstream should result in clearer product specifications, a clearer understanding of performance requirements, and in many cases a shorter payment cycle. </li></ul>
  9. 9. Who does Demand Chain Management Impact? <ul><li>For Warehousing, Distribution and Logistics staff , depending upon the contract it can result in an increased need for warehousing and logistics management or a reduced need as in the case of direct-delivery contracts. </li></ul><ul><li>For Accounts Payable Individuals , it can result in improved methods for payment such as consolidated monthly billing thus reducing the number of invoices handled monthly; an evaluated receipts process where the signed, received packing slip serves a dual function as both the proof of delivery and is a means for issuing payment thus reducing the number of incoming invoices and streamlining the payment process; or a sub-voucher process for automated payments that are a regular amount, issued regularly over the course of the contract; ACH/EFT payments; procurement card utilization. </li></ul>
  10. 10. Why Make the Shift? <ul><li>Shrinking resources in today’s economy makes collaboration and knowledge sharing a necessity. </li></ul><ul><li>We live in a world that is more complex than in the past by merit of the new global economy. </li></ul><ul><li>Savings to be gained: measured in both bid/negotiated savings and in efficiencies or process savings. </li></ul><ul><li>………………………………… It just makes sense. </li></ul>
  11. 11. Demand Chain Process Improvements <ul><li>“ Sub Vouchers”: this is a payment process in which the supplier is paid a consistent amount on a regular basis over the life of the contract. </li></ul><ul><li>Trigger: same amount invoiced monthly </li></ul><ul><li>Action: the system is set up so that payment is automatically issued on a monthly basis for the agreed upon amount. Works well for property leases, equipment rentals, equipment leases. Any situation where the amount paid is always the same over the life of the contract. </li></ul><ul><li>Result: the system automatically generates the payment without additional intervention other than either distribution of charges or reconciliation on the back end. Payment occurs with minimal use of resources and on-time. </li></ul><ul><li>Involved Parties: User unit, Purchasing, Accounts Payable, Supplier, Systems </li></ul>Sub-Voucher Process
  12. 12. Demand Chain Process Improvements <ul><li>Evaluated Receipts: a system in which a supplier is paid based on submittal of a signed, received packing slip and existing contract with line item pricing. </li></ul><ul><li>Trigger: contract with line item pricing and repetitive purchases </li></ul><ul><li>Action: the staff receive the goods into the system, the system is set up to prompt generation of payment based on what was received at the contracted price and payment is issued directly based on receiving with no invoice generation by the supplier and minimal accounts payable interaction. </li></ul><ul><li>Result: use of fewer resources resulting from reduced invoice generation for the supplier and invoice handling by Accounts Payable. Payment is issued for what is received and the contracted price is always paid, ensuring overpayment does not occur. With technology the process can be as automated as the buyer would like. </li></ul><ul><li>Involved Parties: Supplier, Receiving, Accounts Payable, Purchasing, Systems </li></ul>Evaluated Receipts
  13. 13. Demand Chain Process Improvements <ul><li>Consolidated Monthly Billing: rather than individual invoices, the supplier submits either electronically or in hard copy a monthly consolidated invoice of all activity. </li></ul><ul><li>Trigger: contracted pricing, high activity level, multiple delivery addresses, multiple ordering entities under a single contract. </li></ul><ul><li>Action: the contracted pricing is loaded into the system or maintained in a database where it can be extracted from or “hit up against” when invoicing is submitted. The supplier is required to submit pricing in a designated format that contains all of the necessary data to confirm pricing and delivery. A consolidated invoice is submitted by the supplier once monthly and audited against contracted pricing. Payment is made monthly based on the result of the invoice audit (this can be a manual process or automated). </li></ul><ul><li>Result: significant reduction in invoice volume resulting in better use of resources, process can be automated for verifying pricing. </li></ul><ul><li>Involved Parties: Accounts Payable, Systems, Purchasing, Supplier </li></ul>Consolidated Monthly Summary Billing
  14. 14. Demand Chain Process Improvements <ul><li>ACH/EFT Payments/Wire Transfers: these are automated on-line payments made directly to the supplier’s bank account. </li></ul><ul><li>Trigger: contract that requires automated payment to the supplier or where wire transfer is required. Works well for international transactions. </li></ul><ul><li>Action: when purchase order is set up the payment mechanism must be identified as ACH or Wire Transfer and the appropriate banking information must be identified for Accounts Payable. Upon receipt of an invoice, Accounts Payable sets up the payment to occur via ACH or wire transfer according to current banking rules for processing of E-commerce Payments or Business to Business Transactions. </li></ul><ul><li>Result: payment occurs more rapidly, can be readily identified by the supplier. For items requiring pre-payment this can often work well as an efficient means for payment. For international purchases it is an excellent choice as the payment can be verified as received by both the originator and receiver. </li></ul><ul><li>Involved Parties: Purchasing, Accounts Payable, Systems, Banking Institution and possibly other financial departments in the organization. </li></ul>ACH payments
  15. 15. Demand Chain Process Improvements <ul><li>Alignment with key units to provide higher level of service </li></ul><ul><li>Contracting efforts should be aligned with user needs and over-arching organizational needs </li></ul><ul><li>Procurement efforts should be structured in such a way that the results include measureable improvements in process or pricing </li></ul>Procurement related Improvements
  16. 16. <ul><li>Questions & Answers </li></ul>

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