Executive Briefings

Volatility: An Enemy of Consumer Product Companies and Their Supply Chains

Analyst Insight: Volatility is a huge factor for business today. From the stock market to local economies, these volatile times impact world events and play havoc on supply chains. Companies that do not learn to manage the volatility of their supply chains will continue to be at the mercy of external influences. - Bruce Tompkins, executive director, Tompkins Supply Chain Consortium

Variation and constant disruption remain the enemies of efficient and effective supply chains. So, how do companies deal with this level of volatility and turn it into a competitive weapon?

One of the most effective ways to minimize the influence of volatility on supply chains is to become demand-driven. This means that a single sales forecast is used throughout the entire supply chain. The single sales forecast is used to compute order forecasts over the appropriate time horizons for all links in the supply chain. The driving force behind demand-driven supply chains is that it has real customer demand as its basis.

Companies mistakenly believe that they are demand-driven if they forecast well, have a pull system in place, or collaborate with their customers and suppliers. While all of these actions are necessary and beneficial, success in the future volatile market will require more. Companies will need to track and respond to changes up and down the supply chain from customers' customers to suppliers' suppliers. This will require use of the right tools to capture changes and manipulate the data to leverage the information.  Good decisions can then be made in shorter time frames with respect to the movement of inventory and the production of products to meet the shifting needs of the market.

Companies will also be required to accommodate all the different flows that make up their supply chains. Only a few companies have the luxury of only managing a single flow or supply chain. Most have multiple product flows and must manage each differently from one another.  Therefore, consideration must be given to product that is best cross-docked or product that is most economically sent direct to stores. Each of these flows must be understood and operated with demand-driven information and sound decision making capabilities.

                                      The Outlook

In 2012, the notion of demand-driven supply chains as a solution to volatility will become a top priority for many companies that are operating numerous supply chains. The effectiveness of the concepts of demand-driven supply chains is directly proportional to the ability to implement processes and technologies to support the concepts. But if this was so easy, everyone would already be doing it.

Variation and constant disruption remain the enemies of efficient and effective supply chains. So, how do companies deal with this level of volatility and turn it into a competitive weapon?

One of the most effective ways to minimize the influence of volatility on supply chains is to become demand-driven. This means that a single sales forecast is used throughout the entire supply chain. The single sales forecast is used to compute order forecasts over the appropriate time horizons for all links in the supply chain. The driving force behind demand-driven supply chains is that it has real customer demand as its basis.

Companies mistakenly believe that they are demand-driven if they forecast well, have a pull system in place, or collaborate with their customers and suppliers. While all of these actions are necessary and beneficial, success in the future volatile market will require more. Companies will need to track and respond to changes up and down the supply chain from customers' customers to suppliers' suppliers. This will require use of the right tools to capture changes and manipulate the data to leverage the information.  Good decisions can then be made in shorter time frames with respect to the movement of inventory and the production of products to meet the shifting needs of the market.

Companies will also be required to accommodate all the different flows that make up their supply chains. Only a few companies have the luxury of only managing a single flow or supply chain. Most have multiple product flows and must manage each differently from one another.  Therefore, consideration must be given to product that is best cross-docked or product that is most economically sent direct to stores. Each of these flows must be understood and operated with demand-driven information and sound decision making capabilities.

                                      The Outlook

In 2012, the notion of demand-driven supply chains as a solution to volatility will become a top priority for many companies that are operating numerous supply chains. The effectiveness of the concepts of demand-driven supply chains is directly proportional to the ability to implement processes and technologies to support the concepts. But if this was so easy, everyone would already be doing it.