Executive Briefings

Strategies for Being Demand-Driven in a Globalized Economy

Supply chain executives in the process industry sector are primarily concerned with being able to drive volumes in accordance with previously established plans, as well as with maximizing utilization of assets. Asset-intensive manufacturing operations are a key common theme across process industries.

Strategic alignment within the context of demand management refers to being able to align the goals of the sales organization with the demand planning organization with respect to forecasting related metrics. Collaboration refers to being able to get accurate demand signals from the customer base through a win-win collaborative business process. Finally, being market responsive refers to being able to incorporate the impact of external events into the demand management process.

The following are two examples of external market events to illustrate:

• Some industries, like food/beverage, are highly supply constrained due to the dependency of crop yield on the weather (for example, prune manufacturing)

• The housing materials sector (flooring, paint, etc.) is highly dependent on the state of the housing market

In addition, the distance of the company from its end customer is a key factor that reflects how market responsive companies must be.

The key ingredients of a Best-in-Class demand management process include:

• Improve internal collaboration processes for creating forecasts, pricing and promotion plans, and making mid-course corrections-which impacts forecast accuracy

• Execute customer level forecasting to ensure that customer service levels are being met for the key B2B customers-which impacts the customer service level

• Create a tighter feedback loop from actual market activity (e.g., channel sales) to demand assumptions and plans-which impacts forecast accuracy

• Improve external collaboration to ensure that trading partner inventories and capacities are considered during demand planning-which impacts forecast accuracy

• Focus on statistical forecasting in order to generate time series forecasts that serve as a starting point for the collaborative S&OP process

Consumer-centric process industries have additional requirements like:

• The ability to handle pricing strategies to maximize revenue. Forty percent of companies that are removed one or two levels from the customer have identified pricing as a must-have process requirement. Fifty percent have indicated it as a need-to-have process requirement.

• The ability to include demand lift from promotions and other causal events into demand forecasting. Fifty-four percent of companies removed one or two levels from the customer have identified demand shaping/promotions as a must-have process requirement. Forty percent have mentioned it as a need-to-have process requirement.

Best-of-breed demand forecasting solutions have gained significant traction in process industries. Here, best-of-breed forecasting solutions vendors are defined as either stand-alone vendors that specialize in demand forecasting, or SCM suite solution providers or selected ERP providers that adopt a best-of-breed supply chain solution strategy. Conversely, integrated ERP modules refer to the ERP solutions that do not have a best-of-breed supply chain solution component.

The Outlook

The following are from a survey conducted in September 2008, prior to the major events of the recent economic downturn, but are illustrative of what may occur in 2009.

Fifty-five percent say they leverage a forecasting solution. Thirty-four percent have indicated that they leverage a technology solution for forecast collaboration. In  terms of future usage, 32 percent  have indicated that they plan to adopt a forecast collaboration solution in the next 12 months. Twenty percent of respondents have indicated that they plan to adopt a promotion planning solution. Eighteen percent of respondents have indicated that they plan to adopt a statistical forecasting solution.

Strategic alignment within the context of demand management refers to being able to align the goals of the sales organization with the demand planning organization with respect to forecasting related metrics. Collaboration refers to being able to get accurate demand signals from the customer base through a win-win collaborative business process. Finally, being market responsive refers to being able to incorporate the impact of external events into the demand management process.

The following are two examples of external market events to illustrate:

• Some industries, like food/beverage, are highly supply constrained due to the dependency of crop yield on the weather (for example, prune manufacturing)

• The housing materials sector (flooring, paint, etc.) is highly dependent on the state of the housing market

In addition, the distance of the company from its end customer is a key factor that reflects how market responsive companies must be.

The key ingredients of a Best-in-Class demand management process include:

• Improve internal collaboration processes for creating forecasts, pricing and promotion plans, and making mid-course corrections-which impacts forecast accuracy

• Execute customer level forecasting to ensure that customer service levels are being met for the key B2B customers-which impacts the customer service level

• Create a tighter feedback loop from actual market activity (e.g., channel sales) to demand assumptions and plans-which impacts forecast accuracy

• Improve external collaboration to ensure that trading partner inventories and capacities are considered during demand planning-which impacts forecast accuracy

• Focus on statistical forecasting in order to generate time series forecasts that serve as a starting point for the collaborative S&OP process

Consumer-centric process industries have additional requirements like:

• The ability to handle pricing strategies to maximize revenue. Forty percent of companies that are removed one or two levels from the customer have identified pricing as a must-have process requirement. Fifty percent have indicated it as a need-to-have process requirement.

• The ability to include demand lift from promotions and other causal events into demand forecasting. Fifty-four percent of companies removed one or two levels from the customer have identified demand shaping/promotions as a must-have process requirement. Forty percent have mentioned it as a need-to-have process requirement.

Best-of-breed demand forecasting solutions have gained significant traction in process industries. Here, best-of-breed forecasting solutions vendors are defined as either stand-alone vendors that specialize in demand forecasting, or SCM suite solution providers or selected ERP providers that adopt a best-of-breed supply chain solution strategy. Conversely, integrated ERP modules refer to the ERP solutions that do not have a best-of-breed supply chain solution component.

The Outlook

The following are from a survey conducted in September 2008, prior to the major events of the recent economic downturn, but are illustrative of what may occur in 2009.

Fifty-five percent say they leverage a forecasting solution. Thirty-four percent have indicated that they leverage a technology solution for forecast collaboration. In  terms of future usage, 32 percent  have indicated that they plan to adopt a forecast collaboration solution in the next 12 months. Twenty percent of respondents have indicated that they plan to adopt a promotion planning solution. Eighteen percent of respondents have indicated that they plan to adopt a statistical forecasting solution.