With plant closings, rising unemployment, the credit crunch, and shifting demand on supply chains because of the global recession, now may seem a hard time to focus on the recovery. For many of our clients, however, it's top of mind. After all, the most profitable sales for most industries will happen in the upturn.

2009 will be anything but business as usual, with this recession predicted to go longer and be more profound than any other in most of our lifetimes. What should companies do in response? The answer is simple: improve capabilities to better sense demand. Companies need to reduce demand latency to see the upturn quicker. If not, decisions will be made two weeks too late.

Recovery strategies to strongly consider: AMR Research can help. Consider the following ways to sense demand in the upturn:

No. 1--Make better use of downstream data from retailers: Point-of-sale (POS) and inventory movement data can be used to reduce channel latency and shorten the time for replenishment and sensing true shopper demand. However, this is only effective in the North American market for manufacturers with a critical mass of retailers in the channel that are sharing data. One example is the work Del Monte is doing with pet food channel replenishment, where data is readily available from more than 80% of the retail channel. This is also the case for companies with strong sales in the do-it-yourself channel. Data is readily available from Home Depot, Lowe's, and Wal-Mart.

No. 2--Implement vendor-managed inventory (VMI) with customers: In this recession, AMR Research expects to see a VMI renaissance. Implementations will not only shift inventory responsibility, but they'll be used as a mechanism to sense true demand. Take, for example, the use of VMI systems with tank sensing in the chemical business, like Air Liquide's systems in hospitals. Dow Chemical uses RFID as another way to sense demand, keeping tabs on when a tank car is moved from a rail track to an unloading station. The use of RFID in this process triggers a demand signal two weeks earlier than the receipt of a new order.

No. 3--Use downstream data from distributors: Companies are using the recession as an opportunity to redefine distributor relationships in multi-tier distribution channels to encourage data sharing on inventory movement. The building of these demand networks will increase in 2009, with a focus on channel sell-through. An early leader in distributor data sharing is Anheuser-Busch, with its implementation of BudNet, its systems built to sense and consolidate distributor inventory movement. This capability is also key to McDonald's success in India.

No. 4--Move from passive to active forecasting: As companies get better at forecasting processes, they move from monthly to weekly forecasting and shift away from rule-based consumption logic to daily statistical calculations for distribution center requirements. The use of this technique improved Procter & Gamble's distribution-level demand signal by 33%.

No. 5--Tap into sales contract information: Sales contract information is critical for planning processes for make-to-order and configure-to-order supply chains. Integration of the sales-contract process as input for the value network will be used as a mechanism for demand sensing for supply chains driven by sales contract management. This input is an early indicator of market demand. Many semiconductor companies use Model N's products, which enable the tracking of winning designs.

No. 6--Use market data actively: Now is the perfect time to use channel data and third-party data to sense market trends. Many companies are finding the best indicators of demand sensing lie in their own value chains: sensing demand through the stages of vertical manufacturing and connecting processes that are four to five steps back in the value chain to the upstream processes that are closer to the channel. For chemical companies, the use of this type of envelope sensing is growing in importance, especially when it's augmented with market-driven causal factors, such as housing starts and changes in consumption.

No. 7--Sense service requirements: For products with long lifecycles, service data is a way to improve demand sensing. The installation of sensors, such as vibration, age, and usage, enables the prediction of service demand and the evolution of demand-driven service processes. For the consumer products (CP) industry, this is relevant for equipment in the food service channel, like fountains, coolers, and ovens. It can also be used in turbines, jet engines, and elevators. In fact, Caterpillar has mastered this technique to sense service demand of heavy equipment in remote areas.

Now's the time to think about your company's value chain and how to design sensing mechanisms into relationships to better navigate the upturn. How well will your organization sense the upturn? Contact me at [email protected].
AMR Research