Have you heard the murmurings of the fleet of drones that have emerged from Amazon’s high-tech Manhattan warehouse that fulfil customer orders within half an hour? Amazon didn't just happen on this by chance, this buzzing fleet of delivery drones is a product of a demand-driven supply network.
It may sound like the far-off future, but imagine being able to provide your customers with their online purchases within half an hour of submitting their purchase. Achieving this level of customer-service requires a responsive relationship between suppliers and customers.
This is known as a demand-driven driven network, and according to KPMG, organising your supply chain around the customer experience can nearly double your revenue. Let’s take a look at how.
Why be demand-driven?
Demand-driven supply networks centres supply chain management around responding to the customer and demand signals. To be demand-driven, the traditional supply chain needs to managed as a highly integrated supply network where all tiers and partners have visibility and informed on changes in end-consumer demand.
The ultimate goal of becoming demand-driven is to eliminate information latency. Essentially you need to know all the touch-points in your supply chain and how to integrate all this information into a multitier supply chain.
New era a rising customer expectations
Savvy customers now define the delivery model of many large retailers. New expectations on offerings including free delivery are impacting already shrinking margins. Free returns are also expected if there is something wrong with the product.
Consumers and industrial customers who expect omnichannel purchasing are more connected and informed than ever before. They can shop anytime and anywhere online, and they have unlimited information at their fingertips if they choose to research and read reviews on certain products.
Forrester has coined this “the age of the customer”, stating that ‘customer-obsessed strategies are a shared agenda for business and technology leaders’. The aim of this is to win, serve and retain customers, and demand-driven supply networks are the key to this.
Key characteristics of a demand-driven supply chain
Unlike traditional supply chain management strategies, demand-driven supply networks are driven by customer demand and it uses a pull over a push method of gaining new sales. To achieve this you may need to adjust your supply chain to serve your customers. The main characteristics of demand-driven supply chain networks are:
- Product is moved by actual demand/purchases
- Real-time supply chain visibility
- Dynamic inventory management
- Identifying supply issues before operations are impacted
- A single signal is sent to supplier networks to avoid miscommunication
In most cases in a demand-driven supply network, no production order occurs until there is an order that is received, so if you can achieve the above, your supply chain should run like a well-oiled machine.
What you’ll need
One of the main things you need to achieve a demand-driven supply chain is whole-of-chain visibility in real-time. Here are some areas to look at if you want to achieve that:
- Data accuracy
- Accurate forecasting
- Shelf replenishment and shortening process lead times
- Data integration and collaboration between suppliers
Benefits to your business
There are a variety of benefits to your business if you utilise a demand-driven supply network. The main benefits are:
Achieving a balanced cash flow
If your business runs on this method, you most likely experience an increase in sales and reduced operating expenses. Automation reduces operating costs and will allow you to plan by exception.
Reduction in information latency
Under this model, less inventory is carried around because you only ship what is being purchased. All uncertainty is reduced and real-time visibility reduces disruptions.
Improved customer satisfaction
The more empowered customer become, the higher the expectation for order fulfilment. Customers are demanding more choice, with free delivery and free returns. If your business can provide customers with what they want when they want it, you’ll achieve high level of customer satisfaction and loyalty.
Have you got a great case study on demand-driven supply chains? Let us know in the comments below.