Demand management—the use of forecasting technologies along with demand sensing, shaping, and translation techniques to improve supply chain processes— is the natural place for organizations to start when moving to a market-driven value network. The journey to become market-driven requires rethinking demand holistically: the source of demand signals, and the integration of the demand signal into horizontal processes.
Companies should focus on these four key areas to become market-driven:
- Identify the right market signals.
- For each supply chain, there is a market driver that can be tracked and monitored as an indicator. For a manufacturer of lighting fixtures, it’s the number of home starts; while for a manufacturer of asphalt, it’s the number of miles of roads to be paved under government contracts.
- Build demand sensing capabilities.
- Demand sensing is the translation of downstream data with minimal latency to understand what is being sold, who is buying the product (attributes), and how it is impacting demand.
- Define demand-shaping processes.
- Demand shaping happens when companies use sales and marketing tactics like price, promotion, new product launch, sales incentives, or marketing events to influence (shape) future demand. All too many times, companies believe that they are shaping demand, but find that they are really just shifting demand (moving demand from one period to another). Demand shaping creates value while demand shifting results in waste.
- Successfully translate the demand signal to create a more effective response.
- It’s important to translate the demand outside-in from the market to each role within the organization. The design of this system recognizes that the requirements for demand visibility for each supply chain leader—distribution, manufacturing, and procurement—are different.
- Also consider demand orchestration, the process of making trade-offs market-to-market based on the right balance of demand risk and opportunity. These trade-off decisions are dependent on the use of advanced analytics to sense and shape demand simultaneously.
The development of a demand management strategy is easier said than done. Demand management systems were designed for the supply chains of the 1990s when there was less complexity. Over the past decade, supply chains have become more complex because of consolidation through acquisition and globalization.
Unfortunately, the evolution of demand management practices has not kept pace with the business needs. Historic approaches to demand management are not up to the task. As a result, companies are coming to the realization that the demand management process requires a complete reengineering with an outward-in orientation. The process needs to focus on identifying market opportunities and leveraging internal sales and marketing programs to influence customers to purchase the company’s products and services.
It requires a champion—an organizational leader—to orchestrate the change management requirements of the market-driven value network.
Read more about demand management in my recent book, Bricks Matter: The Role of Supply Chains in Building Market-Driven Differentiation.