In my Chapter 2 post, we discussed value networks. In this blog, we will discuss Lora’s take on demand management – specifically, demand sensing, shaping, and translation. As we learned, much like it is easy to use supply chains and value networks as synonyms, when they are not, it is easy to think about demand management and demand planning – or more specifically – using statistical forecasts to predict future demands, and thus, the inputs for supply planning. However, as discussed in this chapter, demand management is much more than statistical forecasting based on history. It is really hard to boil down all the concepts of demand management discussed in the chapter into a blog post, but I will give it my best shot. Demand management comes down to four sub-processes as follows: 1) Demand sensing – this is the first of the demand management processes and is a continual process. In the Internet age, demand signals come from everywhere – online shopping, social media, channel partners, and other endless sources. To be truly effective, demand signals have to be captured by market, channel, category and product – regardless of industry. The main parties who have to collaborate on demand sensing are sales and marketing – to come up with the best possible (and most up-to-date) market opportunities and key business drivers. Lora uses the example of Newell Rubbermaid and how they constantly monitored and used social media to make new product introduction much more successful than it was headed without these social demand signals. 2) Demand shaping – this is the process of using what-if analysis to shape demand based on both strategic and tactical sales and marketing plans. The collaboration here is also between sales and marketing, but also with finance to make sure the most profitable decisions are being made. Lora uses Dell as an example for demand shaping, which brought me back in time to 2003. I was at a conference on managing by metrics (Moneyball has just been published) put on in Cambridge, MA by Dr. Michael Hammer. Dr. Hammer had many guest speakers, but the one that was most memorable was a VP of Supply Chain from Dell. The story of shaping the demand for CRT-based monitors over LCD monitors, when LCD demand exploded quicker than anyone expected, seemed like utopia to me (along with their cash-conversion-cycle of -38 days – that’s right NEGATIVE 38 days). Now, almost 10 years later, I think I am more surprised by how few companies can even approach the demand shaping Dell was doing “6 Moore’s Laws” ago! 3) Demand shifting – different than actually shaping future demand in demand shaping, demand shifting is about matching supply to unconstrained demand. The best example is promotions planning to drive supply before it become obsolete. This process requires the collaboration between many departments including sales, marketing, finance and operations with consensus planning discipline. 4) Demand response – Finally, in spite of all the best sensing possible, unforeseen demands still occur. Responding profitably to these unforeseen demands requires a great discipline around collaboration across most departments, real-time visibility to entire value network to determine if supply can match the new demand (and what about demands might be put at risk), and more. Lora also explores the process, people and technology challenges to achieving excellence in demand management, using industry examples and case studies. In short, achieving excellence in demand management – to become market-driven – is extremely challenging, but the rewards are more than worth the effort to get it right. Or put another way, staying in business over the long term without achieving market-driven demand management excellence is going to be very hard.
Bricks Matter Book Review: Part 3
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