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How You Can Move To The Demand Driven World
Demand driven principles can help companies better align production and inventory levels with actual market demand. This improves customer service while reducing inventory levels typically by 30%. The presentation discusses how the bullwhip effect and inherent instability in ERP systems can cause shipments and production to vary more than actual demand. Adopting demand driven practices like using inventory buffers and replenishing based on real orders rather than forecasts can create a more stable system. The presentation also covers engaging sales and marketing to provide better demand projections and adjusting processes and roles to successfully implement demand driven strategies.
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How You Can Move To The Demand Driven World
- 1. 11 HOWYOU CAN MOVETO THE DEMAND DRIVEN WORLD - IMPROVING SERVICE AND REDUCING INVENTORY 1 SUPPLY CHAIN HUB, ALDWYCH, 6TH JUNE 2017
- 2. 2 S CA L A SCALA CONSULTANCY • International consultancy specialising in Procurement, Supply Chain, Logistics and Customer Service. • Independent, objective expertise to drive supply chain improvements • Best practice, sector-specific forums to share industry knowledge, insight, and innovation. • Keith Newton, Executive Director • Food industry, Supply Chain Director • David Battye, Senior Consultant • Operations Improvement & Product Launch experience
- 3. 3 S CA L A WHY DEMAND DRIVEN? • Radically different approach to aligning production and inventory with actual market demand • High commercial impact: ▪ Stabilises production schedules and inventories ▪ Delivers high customer service levels ▪ Inventory reduction typically 30% • Design methodology provided by Demand Driven Institute
- 4. 4 S CA L A WHAT IS THE PROBLEM WE FACE? • 39 weeks of US soap bar demand • Demand does vary week-by-week but there are not huge variations Source: Demand Driven Institute
- 5. 5 S CA L A WHAT IS THE PROBLEM WE FACE? • Shipments however have many more spikes and troughs
- 6. 6 S CA L A WHAT IS THE PROBLEM WE FACE? • Production is even more out-of-kilter with actual demand • Market Mediation costs – inventory and operations liaison - are high
- 7. 7 S CA L A THE CAUSE? INHERENT SYSTEMIC INSTABILITY • Bullwhip Effect works its way up the Bill-of-Materials • The way ERP systems work are inherently unstable ▪ Set up BOM in the ERP system ▪ Input forecast by SKU ▪ Materials needs & scheduling planned ▪ Once reality diverges from forecast … ▪ … errors get magnified in the whole chain and system becomes unstable FG DC2FG DC1PackMfgMfgMfgRM RM RM RM forecast Suppl. Suppl. Suppl. Suppl. Cust. Dependent demand network
- 8. 8 S CA L A MOVING TO THE DEMAND DRIVEN WORLD • The Why • … The How
- 9. 9 S CA L A THE CORE MESSAGE OF DEMAND DRIVEN • A lot of Management Speak clouds the core message • Radically different approach to aligning production and inventory with actual market demand - ‘Think Differently’ Demand Driven is a Flow Operating Model Maxim: materials & goods flow in line with actual demand Demand is expressed as a projected range
- 10. 10 S CA L A DEMAND DRIVEN – RE-THINK HOW TO MANAGE • Supply Chain Problems: ▪ Instability in the system Source is the way flows of information and materials are managed ▪ Disconnection with actual demand The ‘beat of supply is not synchronised with the beat of actual demand’ • Demand Driven Solution ▪ Buffer the production system at key points Intercept & moderate adverse pressures ▪ Replenish the buffers according to actual demand
- 11. 11 S CA L A SIDE BAR | INVENTORY BUFFERS Run rate volume: average daily consumption * supply lead time Variability volume Order Quantity volume Average volume held Top of Yellow trigger point If above Top of Green then over-ordering
- 12. 12 S CA L A DDMRP - ALIGNS PRODUCTION TO ACTUAL DEMAND • Feedback loop of actual orders triggering replenishment of the buffer • Stable system as production inherently linked to actual demand • ‘Net Flow Equation’ validates the need to top up the buffer FORECAST BUFFER; AVERAGE & VARIABILITY PRODUCTION ALIGNED WITH DEMAND SALES ORDERS FULFILLED RESET & START AGAIN INVENTORY BUFFER ‘Periodic range forecast’
- 13. 13 S CA L A NET FLOW EQUATION – SIMPLE BUT ELEGANT • Calculate • Compare NET FLOW INVENTORY ON HAND INBOUND INVENTORY FIRM ORDERS + - INVENTORY BUFFER • Elegance – feedback loop, production to actual demand Net flow Top of Yellow Source: Demand Driven Institute Need to produce this SKU? What priority compared to others? • Replenishment signal • Prioritise production
- 14. 14 S CA L A BUFFERS WILL BE PLACED AT MULTIPLE POINTS Inventory is an asset to make the sale, reduce lead-time Buffer sections of the production chain, gain resilience.
- 15. 15 S CA L A ENGAGING SALES AND MARKETING SALES & MARKETING OPERATIONS MARKET MEDIATION
- 16. 16 S CA L A CHANGING MARKETING ENGAGEMENT BY DEMAND PROFILE Long run Short run • Need to get down to the next level – how does demand vary by SKU? • Reference demand profiles; allocate SKUs to templates
- 17. 17 S CA L A SALES PROJECTION REQUIREMENTS SKUS BY PROFILE 12691 12692 12694 13001 13002 13003 98976 … … … … … … … … … … … … … 00125 AVERAGE RANGE %CHANGE START INFLEXION END SEEDVOL SALES POLICY X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X 22691 22692 72694 23001 24002 52003 68976 … … … … … X X X X X X X X X X X X X X X X X X X X X X X X X X 1. Adopt templates 2. Allocate SKUs 3. Standardise data needed
- 18. 18 S CA L A CRITICAL TIMES TO WORK WITH SALES & MARKETING Before planned promotion After planned promotion Inflexion point / surge or under-shoot in demand time volume • Do not need same level of detail for all skus at all times • Tight management at critical ‘Edge Points’ Promotion profile
- 19. 19 S CA L A MARKETING INPUT TIMING • Long-Run Skus • Long-run variations • Short-Run Skus Weekly Monthly Is there any change expected? No? Buffers continue; average plus variability range Trend, Promotion? Change buffers Short Life SKU to add? Plan: Start & end date, seed volume, period volume, … Monitor system state Commission production to buffer priority Track sales vs buffers. Meet with Sales and Marketing and re-confirm / adjust buffers. Aligned to inventory policy. Still need ‘sales projection’ numbers
- 20. 20 S CA L A DEMAND DRIVEN PROJECT MANAGEMENT • Hard tasks: Data, System and Function • Working practice tasks: Process, Liaison, Tracking
- 21. 21 S CA L A INTRODUCING DEMAND DRIVEN WILL BE A PROJECT CO-ORDINATION TRANSFORMATION PROJECT TYPES PEOPLE - CRITICAL TO SUCCESS ‘GET THEM TO DO THEIR JOB’ ‘GET THEM TO CHANGE THEIR JOB’ APPOINT A PROJECT MANAGER DEMAND DRIVEN - ENGAGE SUPPLY CHAIN LEADERS Demand Driven
- 22. 22 S CA L A SCALA ARE A LEAD PARTNER FOR ORCHESTR8 • Enterprise capable DDMRP SaaS software solution • Simple and effective planning tools with a huge array of functionality • Demand Driven Institute accredited as being fully compliant with their stringent criteria for DDMRP software packages
- 23. 23 S CA L A GAIN DEMAND DRIVEN SUCCESS BY ENGAGING PEOPLE BRIEFING BUSINESS MANAGERS | AGREE NEED TO CHANGE ASSESSMENT PILOT ROLLOUT OPTIMISATION BUSINESS MANAGERS | CONFIRM THE COMMERCIAL BENEFIT PLANNERS & MARKETING | CREATE ADVOCATES SALES AND MARKETING | EMBED NEW WAYS SUPPLY CHAIN STAFF | SUPPLY, STORAGE, DISTRIBUTION
- 24. 24 S CA L A PILOT CHANGE PHASES Interface SaaS software Configure & train Operational stability Adopting process change Review SeptemberJuneMayApril July August 2. Client buffer configuration 3. Client scenarios drove training 4. Sense check & mindset change 1. Data cleansing & interface build
- 25. 25 S CA L A PILOT CHANGE PHASES Set up SaaS software Configure & train Operational stability Adopting process change Review SeptemberJuneMayApril July August 1. Change S&M data requirement 2. Sales tracking with S&M
- 26. 26 S CA L A SUMMARY
- 27. 27 S CA L A DEMAND DRIVEN ADDS RESILIENCE • Put shock absorbers into your Supply Chain system • Gain business benefits Process Produce Supply
- 28. 28 S CA L A WHY DEMAND DRIVEN? • Brian Dooley of BT, DDI webinar 23 May ▪ In around 6 months…. ▪ 32% reduction in FG Inventory ▪ 43% reduction in SKUs over ‘top of green’ (overstocked) ▪ “We are not ordering product we don’t need” Demand Driven Institute – Video available of presentation
- 29. 29 S CA L A CONTACT keith.newton@scalagroup.co.uk david.battye@scalagroup.co.uk @scalagroupintl scalagroup.co.uk company/780987