To kick things off in the discussion, let's ask:
What is a demand-driven supply chain?
A demand-driven supply chain is a supply chain strategy that focuses on responding to actual customer demand rather than relying on forecasts. It involves real-time visibility into customer demand and flexible manufacturing and logistics processes, focusing on the Flow of relevant information and material up and down the supply chain.
Let's Consider again the Hypothetical Case Study: Canadian Automotive Parts Manufacture
Canadian Automotive Company is a global manufacturer of automotive parts and components. The company has experienced the bullwhip effect within its supply chain, resulting in significant challenges and increased costs. They adopted the bullwhip mitigation suggestions in the previous blog and did gain some success. However, they recently attended a workshop that explained the relatively new Demand Driven Materials Requirements Planning (DDMRP) methodology, from the Demand Driven Institute, that is providing companies with higher service levels, and at the same time reducing inventory levels and lead-times. It also has the effect of mitigating the bull whip effect by strategically placing stock buffers in the supply chain providing points of independence and stopping the transference and amplification of information up the supply chain as well as the flow material variations down the supply chain.
Scenario: Canadian Automotive Company manufactures a specific automotive component, let's say a fuel pump, and supplies it to various automobile manufacturers. The supply chain includes multiple tiers of suppliers, distributors, and retailers.
01. Supplier Collaboration: Canadian Automotive Company establishes a collaborative relationship with its key suppliers, training them in DDMRP principles so they can easily integrate into their supply chains.
Example: Canadian Automotive allows their key suppliers access to the stock buffers they replenish with components. They train the supplier in the DDMRP methodology. This means the supplier monitors the stock buffers at their customer and replenishes the stock when required according to the rules. The objective being to never stock the customer out of the components they supply. This also reduces the administration for Canadian Automotive, as they don’t need to place PO’s on their supplier, just accept delivery notes and invoices for payment.
02. Improved Operating Model on the Factory Floor: Canadian Automotive has improved the efficiency on their factory floor by implementing a full Demand Driven Operating Model which allows them to work timeously on true customer priorities.
Example: Canadian Automotive implement a Demand Driven Operating Model on their factory floor that encompasses many of the Theory of Constraint (TOC) practices of determining Control Points, Constrained and Bottleneck Resources and adopting Time and Capacity, as well as Stock, Buffers in their manufacturing processes. In addition, they implement Finite Scheduling at their Control Points and Constrained Resources.
03. Customer Collaboration: Canadian Automotive has also persuaded their key customers to adopt the DDMRP methodology.
Example: Canadian Automotive now has access to the stock buffers at their key customers and can replenish them with fuel pumps according to the rules ensuring that the customer is never stocked out of those assemblies. This requires less administration for the customer as they don’t need to supply PO’s to the supplier, just accept delivery notes and invoices for payment.
Benefits and Outcomes:
By implementing a demand-driven supply chain strategy, Canadian Automotive achieves several benefits and outcomes:
⮞ Improved Customer Satisfaction: Due to the strategically placed stock buffers in the supply chain, there is always availability of materials. This leads to enhanced customer service levels, greater customer satisfaction and loyalty, resulting in increased orders.
⮞ Reduced Inventory Costs: By right sizing the inventory levels in the strategic buffers and dynamically adjusting them based on actual demand, the inventory provides the best Return on Investment (ROI) for this valuable resource.
⮞ Increased Supply Chain Responsiveness: A demand-driven supply chain enables the company to respond and adapt quickly to market changes and customer demands. The company can adjust production, allocate resources, and optimize logistics processes in real-time.
⮞ Demand Driven Operating Model in the Factory: By implementing the Demand Driven Operating model philosophy on the factory floor with not only stock buffers at strategic points in their Bills of Materials, but also using Time and Capacity Buffers where required in their Routings, as well as Finite Scheduling at Control Points and Constraints, they have been able understand priority of customer requirements as well as reducing Lead-Times to supply products to their customers.
By embracing a demand-driven supply chain strategy they are on their way to becoming a Demand Driven Adaptive Enterprises, incorporating the tactical Demand Driven S&OP process as well a strategic Adaptive S&OP process, the Company is achieving very high levels of customer service and satisfaction, right sized inventories resulting in reduced costs, reduced lead-time to their customer and enhanced supply chain responsiveness.
Note: The above case study is purely hypothetical and does not represent any specific company or industry. It is provided for illustrative purposes to explain the concept of a demand-driven supply chain and its potential benefits.
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