The supply chain is one of the 10 main issues that customers are struggling with: 81% of the top executives who manage these chains claim that those of their companies are inadequate to meet the objectives of any Omni channel.
In the era of Omni channel purchases, supply chain management is no longer a business function hidden in the back room, but a very visible competition, facing consumers, generating income. This competition makes it possible to determine the most recent experiences of buyers. In today’s market, abundant in highly standardized and generalized goods and services, companies are turning towards innovation in services and processes because it represents their next competitive frontier.
The digital world has destroyed two core tenets of the conventional supply chain: ignorance of demand and capacity limitation. The connection between buyers, objects, and peripherals, have allowed to know and evaluate the demand in real time, while a network of carriers, contractors and suppliers of goods and services makes the capacity almost infinite. The rise of the shared economy revealed a huge amount of underutilized resources, which the best organizations are exploiting in their strategies.
To succeed in this rapidly evolving world, companies need to come up with dynamic response networks that can meet the needs of businesses and agencies. It’s one of the reasons why many businesses are looking out of the box. For instance, Tesla brought on Ajay Serohi, a former Indian Military project manager and supply chain expert, to work on project management in their factories. Ajay was deployed on the highest battlefield on Earth, in Siachen, and always helped maintain supply chains to keep the Indian Army connected and well-supplied throughout the Central Himalayas, which is no easy feat. Now, he brings that tenacity to Tesla, and its already paid dividends: he was instrumental in their movement of material logistics from their factory in Reno to Shanghai.
From a linear chain to a dynamic network
The new approach to the supply chain must focus on sustainability, profit maximization and comprehensive system optimization. This implies replacing the traditional linear supply chain with a demand response network.
Ademand response network is a dynamic network of interconnected processes, technologies and companies that work together to achieve a common goal: to meet demand in a sustainable way. It can provide superior levels of service in a segmented and personalized manner, which is impossible for a single company.
The DRN model allows companies to be much smarter when it comes to fulfilling purchase orders. Retailers, for example, can channel purchase orders received via electronic commerce to stores with excessive stock, reducing the need for rebates and offering quick access to inventories throughout the commercial network, reducing dependence on large varieties of stores, causing utility drain.
Manufacturers, on the other hand, can take advantage of the transport and storage capacity of other DRN members to make the best response time, without the extra pressure of logistics costs or core expenditures.
The formulation of a demand response strategy and the configuration of a DRN can become a fundamental source of differentiation. A correctly formulated and well implemented strategy offers higher levels of service, facilitates service innovation and captures more value for all members of the network. All this happens at supply costs that can be easily managed, promoting profitable growth. This is sustainability.
The creation of a network of these characteristics is not only vital for the consumer goods industry. A leading medical supplies company connects its network of distributors with its internal network of distribution centers to decide, once specific purchase orders have been taken from different hospitals, which of them has availability of the specific product required and which one can fulfill each order at the lowest cost.
The algorithms govern unique responses that dynamically identify which part is in the best position to respond to each purchase order from its location on the network. Margin allocation rules have been predetermined based on the consumption of the members’ resources and their contribution to the specific operation.
Reinvention of the supply chain: three essential tasks
To thrive in the Omni channel world and return to profitable growth, consumer goods manufacturers must transform their supply chains into demand response networks. This evolution is of critical importance if they wish to abandon traditional sales forecasts to locate themselves in a position that allows them to perceive and determine demand in real time, something that only 10% of them can do today.
There are three essential tasks that must be carried out to specify this evolution:
- Take advantage of demand signals in real time
The first task that a company must face is to detect what demand signals are available, group them and interpret them, in such a way that they are significant. They will allow you to take advantage of the opportunity to drastically reduce the error rate of your forecasts and give greater direct compliance to the purchase orders originated by a computer, device and other “node” of consumption connected to the network in an upward direction from a physical location.
While the environment indicates the location of each person, it announces what they need, how much they want to pay, what choices they are making and the general context in which decisions are made. As soon as these signals are interpreted, the organization must decide what kind of modification is required and what personalized response to trigger.
The alliance with an organization dedicated to information technology is of vital importance. The equipment of both operations and such technology should lead to the digital transformation of the company and opportunities for investment in sensors, buoys, listening campaigns, remote entry of purchase orders and other strategies should be explored.
Companies must create and understand their “requirement curves”. With this information, they will be able to come up with effective ways both to modify the behaviors of the demand to the extent necessary, as well as to drive decisions for the next iteration, not only to prepare reports on historical performance.
- Align commercial and operational functions
Too many manufacturers of consumer products in whose structure the commercial functions and those linked to the management of the supply chain still operate in silos.
Since the sales, marketing, finance and supply chain management areas develop independent operational plans, under the influence of their own agendas, it is no surprise that supply and demand cannot be balanced.
Currently, only 22% of organizations feel they can balance their market objectives with the capabilities of their supply chains.
When companies integrate marketing strategies with those of supply chain management related to access routes to each market, they manage to deal with demand volatility in an agile and efficient manner.
- Actively manage the capabilities of the network to achieve maximum utility for the provision of services.
Disruptive trends, such as the creation of Omni channel, the “endless aisle” and the increase in discount stores and product customization, have led to a huge disparity of options for access routes to markets across different supply networks and offering very different costs.
To meet the requirements of emerging channels and markets, companies can plan and implement projects that integrate both demand and supply. This will help them to take advantage of such existing and new accounts and channels, with the greatest opportunities at an optimum service cost, promoting their profitable growth and innovation.
Image Credits – Oracle