Results from a recent survey on collaborative initiatives show that in their quest to optimize overall supply chain costs, industrial manufacturers are focused on streamlining the order management process as well as reducing inventory in the supply chain. This, however, is only one side of the agility equation. To achieve true supply chain agility, an outside-in view of demand should be a fundamental capability of the supply chain organization. This article will look at the survey results, highlight some considerations for collaboration with customers, channel partners, and suppliers, and list four best practices for improving demand management.
1. Supply chain agility--improving profitability through velocity and flexibility. From our discussions with manufacturing organizations across industries, agile supply chains share key attributes:
a. An integrated view of demand across the supply chain
b. Cycle time speed (in manufacturing, end-to-end processes and the ability to ramp volume up or down)
c. The ability to manage variability, with leaders embracing simulation techniques to predict the outcomes of various scenarios
d. Fully understanding constraints and total costs and how they impact supply chain decisions
e. Consistent quality, particularly during demand spikes
For our full definition of agility, please read "Supply Chain Chaos and the Need for Agility."
2. How agile are industrial manufacturers? Serving diverse channels with complex solutions, industrial manufacturers frequently have an engineering-centric approach to the supply chain and supporting IT capabilities. The demand planning, product configuration, and materials management capabilities tend to be transactional in design and siloed in the functions they serve. Without an end-to-end value chain focus, or a clear understanding of longer term demand, though, this ad hoc approach leads to long cycle times, risks of owning redundant inventory, and supply chains that lack agility. In addition to the agility attributes mentioned above, collaborative capabilities internally and externally are becoming core capabilities of leaders across industries.
3. Build agility off a solid cost base. A deep dive into the results of a recent collaborative commerce survey of industrial manufacturing respondents supports the benefits of cost optimization and decreasing order-to-delivery cycle times. Automating order management and configuration reduces order fulfillment costs and order errors. Visibility of inventory and order status across the supply chain enables proactive response. This all translates into better, more profitable perfect order performance.
However, if the most important business goal is to optimize supply chain costs, this demonstrates an upstream focus on supply, which is typical of companies with longer product lifecycles. Leaders are reaping greater benefits from a complementary, downstream, outside-in focus and demand management.
When asked about their ability to sense demand through interaction with downstream partners, industrial manufacturing survey respondents fared worse than other industries. The focus on execution, rather than planning, is supported by survey results. Industrial respondents selected the following as the top four order management business processes:
1. Finished goods/final assembly visibility across the distribution network--77%
2. Enhancing customer satisfaction via order/shipment visibility--77%
3. Improving warehouse costs through lower inventories/labor efficiency--74%
4. Adhering to custom customer requirements (packaging, labels, etc.)--74%
Accurate, advanced customer order demand visibility came in fifth.
Our interaction with industrial manufacturers supply chain teams confirms these priorities. In a recent session, we asked about the importance of demand management. The response was, "That's sales and marketing's problem. We are just interested in working on issues from the plants up." Their focus on customer service, logistics, quality, and materials management will continue to provide incremental benefits, they will be unlikely to yield the step change that many leaders in consumer products industries have enjoyed through better understanding of customer demand.
While there are compelling opportunities to reduce cost in labor or capital-intensive industrial businesses, leaders are leveraging better insight into downstream demand to reduce risk more dramatically still. The study also identified the areas industrial manufacturers are struggling with most.
4. IT considerations for collaboration. Collaboration is on everyone's list of initiatives. The vendor landscape is booming, with many best-of-breed specialists looking for and filling the ERP gaps. Because the landscape is fragmented, as always a clear definition of the business goals needs to be translated into the end-to-end business processes, and that into the related collaborative relationships and tools required.
The survey results showed Exostar, Extol, GT Nexus, i2, and Sterling Commerce to be the most popular tools being used or planned to be implemented for collaboration, communication, and information sharing in the order execution cycle.
The most common collaborative processes we see include the following:
Demand and supply planning:
1. Getting a better demand signal of what is likely to be sold, including customer forecasts and point-of-sale (POS) data
2. Defining inventory and capacity policies regarding buffer inventory and capacity reservations (e.g., VMI programs)
3. Demand outreach programs that can help shape demand decisions around excess product or parts, such as trade promotions
4. Providing forecast information to suppliers
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