Demand-Driven Supply Networks

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This presentation covers key aspects of DDSN and how they are transforming our traditional views of logistics and supply chain management

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Demand-Driven Supply Networks & Demand Management : 

Demand-Driven Supply Networks & Demand Management Supply Chain Executive Forum October 26th, 2011 Maria Rey maria.rey@isye.gatech.edu 1 (c) Maria Rey, Atlanta 2011

From the Classics to the Contemporaries : 

From the Classics to the Contemporaries From Jean Baptiste Say “Supply creates its own demand” Context? To John Maynard Keynes “Demand creates its own supply” Context? Today? 2 (c) Maria Rey, Atlanta 2011

Learning Points : 

Learning Points Connecting fundamental demand management concepts from an economic perspective with DDSN and SCM strategy Demand-driven supply networks as the theoretical framework for supply chain management as a demand response component Discussion on what means to be demand-driven and which processes need to evolve to become a DD organization 3 (c) Maria Rey, Atlanta 2011

Agenda : 

Agenda Fundamental concepts about demand Demand-driven supply networks Cisco (2001) Minicase Demand response planning as part of demand management How to transform supply chain processes into a demand-driven response organization 4 (c) Maria Rey, Atlanta 2011

A. Fundamental concepts About demand : 

A. Fundamental concepts About demand We do not plan demand. We plan and manage our specific response to market demand. Can we create demand? 5 (c) Maria Rey, Atlanta 2011

What is Demand? : 

What is Demand? Behaviors Decisions Actions What determines demand? 6 (c) Maria Rey, Atlanta 2011

Demand! : 

Demand! In economics, demand is the wish To have something The ability to pay for it The will to do it Demand means the ability to acquire a good or service and pay for it at a specific time and location Melvin and Boyes (2010) demand as a relation between price and quantities while every other factor remains constant (ceteris paribus). (c) Maria Rey, Atlanta 2011 7

How people make decisions? : 

How people make decisions? The study of economics starts with four principles of individual decision making: People face tradeoffs The cost of something is what you give up to get it. Rational people think at the margin. People respond to incentives. 8 (c) Maria Rey, Atlanta 2011

Determinants of Demand: Price and the Demand Curve : 

Determinants of Demand: Price and the Demand Curve 100 200 300 400 500 600 1 2 3 4 5 6 Price $ Quantity A demand curve for a “normal” good or service 9 (c) Maria Rey, Atlanta 2011

Other determinants of demand : 

Other determinants of demand Income: A tale of two types of goods Normal Goods Inferior Goods Price of Related Goods: Another Tale! Substituting Goods Complementary Goods 10 (c) Maria Rey, Atlanta 2011

More Determinants of Demand : 

More Determinants of Demand Expectations Our own internal personal (very personal) forecasting! Tastes and Influences How to Spend It (Financial Times) 11 (c) Maria Rey, Atlanta 2011

Shift of Demand Versus Movement Along a Demand Curve : 

Shift of Demand Versus Movement Along a Demand Curve A change in demand is not the same as a change in quantity demanded. In this example, a higher price causes lower quantity demanded. Changes in determinants of demand, other than price, cause a change in demand, or a shift of the entire demand curve, from DA to DB. 12 (c) Maria Rey, Atlanta 2011

Generally, Determinants of Demand Include: : 

Generally, Determinants of Demand Include: Pricing Income Pricing of related goods or services Tastes and influences Expectations Here is a common formulation for the demand curve: 13 (c) Maria Rey, Atlanta 2011

Demand Management for Supply Chain Managers : 

Demand Management for Supply Chain Managers Demand Management is a collaborative process for sensing, shaping and responding to demand Supply Chain Management comprises all demand response processes including forecasting and planning: What and when products are needed Where and how many products are needed More formally, it is the supply chain management process that balances the customers’ requirements with supply chain capacity Doug Lambert, Supply Chain Management (Supply Chain Management Institute, 2004) 14 (c) Maria Rey, Atlanta 2011

B. Demand-Driven Supply Networks (DDSN) : 

B. Demand-Driven Supply Networks (DDSN) The Cisco (2001) Mini-Case 15 (c) Maria Rey, Atlanta 2011

Demand Management at CISCO Systems : 

Demand Management at CISCO Systems A bit of business history: circa 2001 A “small “speed-bump! (c) Maria Rey, Atlanta 2011 16 Cisco CIO Peter Solvik says the company's disastrous third quarter would have been worse without its forecasting software. Why Cisco's renowned forecasting software couldn't stop an inventory disaster  The flaw in Cisco's touted outsourcing model  The danger of believing your own press clippings

What Went Wrong? : 

What Went Wrong? Demand Sensing Demand Shaping Demand Response 17 (c) Maria Rey, Atlanta 2011

Things haven’t changed much since modern economics… : 

Things haven’t changed much since modern economics… (c) Maria Rey, Atlanta 2011 18

Then, what is different? : 

Then, what is different? It essentially is a supply chain driven by your customers. It means running your company on more real time information. Fundamental shift on how to do business. Linking supply with demand with products. (c) Maria Rey, Atlanta 2011 19

Today’s supply chain cannot deliver on many stakeholders’ expectations… : 

Today’s supply chain cannot deliver on many stakeholders’ expectations… Orders – 20%+ are filled imperfectly Inventory - More than $1.7 trillion in the chain now Markdowns - 78% of merchandise sold New Products – 75% failed Engineering – 70% of hours wasted 11/9/2011 (c) Maria Rey, Atlanta 2011 20

The Demand-Driven Supply Network Defined : 

The Demand-Driven Supply Network Defined 21 (c) Maria Rey, Atlanta 2011 A system of technologies and processes that senses and reacts to real-time demand across a network of customers, suppliers, and employees

Demand Driven Planning : 

Demand Driven Planning Forecast-Driven Planning Predictive - use formulas and history to forecast demand Uses “buffers” to absorb demand shocks Expensive use of working capital Demand-Driven Planning Demand Sensing: Uses demand signals to plan and manage supply Demand Shaping: Uses strategies and information to shape demand Demand Response: Fulfillment based on customer requirements 22 (c) Maria Rey, Atlanta 2011

What It Means - Demand Management : 

What It Means - Demand Management Sensing Utilize granular data Know and utilize causal factors and product attributes Shaping Optimize promotion effectiveness Shape demand via sales and commercial strategies Response Validate operational plans S&OP to synchronize company and partners 23 (c) Maria Rey, Atlanta 2011

Key DDSN Capabilities : 

Key DDSN Capabilities Reading Demand Signals Understanding Demand Signals Demand and Supply Visibility Integration with New Product Development & Lifecycle Management Event Driven Planning Processes with Fast Response Times Real Time Demand Response Real time is different from immediate! (c) Maria Rey, Atlanta 2011 24

Is there such a thing as Demand Management? : 

Is there such a thing as Demand Management? ∑ DDSn; DDSh; DDRes = Demand-Driven Supply Networks (DDSN) 25 (c) Maria Rey, Atlanta 2011

c. Demand Response Planning : 

c. Demand Response Planning What would 26 (c) Maria Rey, Atlanta 2011

Collaborate Internally and Externally : 

Collaborate Internally and Externally (c) Maria Rey, Atlanta 2011 27

The Role of Demand Management in the Supply Chain : 

What is the definition of Sales and Operations Planning? The Role of Demand Management in the Supply Chain *Sales and Operations Planning (S&OP) is the process of bringing together all plans (sales, marketing, finance, operations, etc.) into one integrated plan This includes the Monthly Rolling Estimate and the weekly Operational Forecasts when they are originated from different sources of data and objectives *Source APICS Dictionary APICS.org 28 (c) Maria Rey, Atlanta 2011

Sales & Operations Planning : 

S&OP Management Meeting Demand Meeting Consensus forecast Causal factors Marketing / Sales Meeting Product mix changes Promotions Sales quotas Customer collaboration Supply Meeting - Production plan Inventory plan Supplier collaboration Balance supply and demand Synchronize all operational plans Sales & Operations Planning (c) Maria Rey, Atlanta 2011 29 Finance & Budgeting

Demand Management for a Demand-Driven Supply Network : 

Demand Management for a Demand-Driven Supply Network (c) Maria Rey, Atlanta 2011 30 Demand Driven Sensing Shaping Response Support Multiple Demand Sources Flexible Data Models Granular Visibility Support VMI & CPFR Bayesian Markov Mixed Model Forecasting Support Causal Factors Optimize Promotions Bottom Up, Top Down, Middle Out Attributes & Characteristics Chaining and Shape Modeling Collaboration Exception Handling Workflows and Worksheets

d. How to transform our system to become demand-driven? : 

d. How to transform our system to become demand-driven? Discussion 31 (c) Maria Rey, Atlanta 2011

Connecting with Sales and Marketing : 

Connecting with Sales and Marketing We’re here to sense, shape and respond to demand, not just to optimize resource utilization! 11/9/2011 32 (c) Maria Rey, Atlanta 2011

Our reaction to… : 

Our reaction to… New SKUs? New markets? Faster response times? Better operational quality? (c) Maria Rey, Atlanta 2011 33

Learning Points : 

Learning Points Connecting fundamental demand management concepts from an economic perspective with DDSN and SCM strategy Demand-driven supply networks as the theoretical framework for supply chain management as a demand response component Discussion on what means to be demand-driven and which processes need to evolve to become a DD organization 34 (c) Maria Rey, Atlanta 2011

Demand-Driven Supply Networks & Demand Management : 

Demand-Driven Supply Networks & Demand Management Supply Chain Executive Forum October 26th, 2011 Maria Rey maria.rey@isye.gatech.edu 35 (c) Maria Rey, Atlanta 2011

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