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Can Demand Drive You Crazy?

"If you're driven by demand, you're probably being driven crazy." Rich Sherman, principal essentialist with Trissential LLC, explains that disturbing statement.

Can Demand Drive You Crazy?

What does it mean to be “driven crazy” by demand? All companies are by necessity driven by demand, says Sherman. Yet an over-reliance on one fixed number can cause problems within the organization. Managers have to acknowledge that the forecast is always to some extent wrong. They need to do a better job of managing actual demand, “capturing it at the earliest possible time, and communicating it in real time,” he says.

The end customer is the real driver of successful supply chains. That individual’s behavior is becoming increasingly visible through the use of point-of-sale data, enhanced by the use of smartphones and other mobile devices. “What we’re seeing,” says Sherman, “is that more and more companies are tapping into the apps that are developed for mobility.” Retailers today can obtain advance knowledge of a customer searching for a particular product, then act to attract that buyer to their stores, possibly by sending out a coupon or discount offer. The trend “is changing the whole analytic nature of how we predict and forecast demand,” Sherman says.

The existence of big data, along with mobile devices, makes possible a level of analytics that wasn’t possible before. Companies today can engage in “systems thinking” – a full understanding of how a product behaves as it moves through a multi-echelon supply chain.

“We’ve got to start thinking about a smart supply network,” says Sherman, “with nodes that have to work together and separately to affect the behavior of that network. For every action, there’s a reaction.”

Sherman cited the example of Amazon.com, which treats its distribution network as a single pool of inventory. As orders come in throughout the day, it decides on the best mode and location from which to ship. Fulfillment is governed by analytics that identify the lowest-cost option for meeting customer expectations.

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