However, Gartner says only a handful of consumer products companies are piloting or already aligning upstream production and materials replenishment from suppliers for some part of their business based on downstream pull signals. In other words, few consumer goods companies have really connected the supply chain to the store shelf.
But it says that those few that have done so "have seen a decrease in inventory, more predictable supply operations and the same or higher customer service. They set inventory buffers based on product level, average daily demand, range of demand variation and supply reliability. These buffers are reviewed regularly to reflect recent patterns, rather than averaging two years of history to take out the highs and lows."
This is significant change, Gartner believes.
"Interest in better aligning near-term supply execution with what is actually happening downstream is growing - a capability Gartner calls "respond planning." It is expected that most large consumer products companies already on their demand-driven value network journey will be leveraging downstream consumption to drive supply execution through manufacturing and with key suppliers by 2018," Gartner says.
The bottom line: Use of demand-sensing technology that leverages downstream data, pattern recognition and predictive analytics will provide more accurate near-term demand projections for more consumer goods companies, Gartner says.
In addition, increased analysis of actual SKU-level demand to determine average daily usage, near-term demand patterns and range of variation will improve alignment of buffer inventory to cover demand volatility with less reactive disruption in the upstream supply chain than we see today.
As a result, overall inventory will be reduced because the mix is better aligned with what is selling. There will be less slow-moving and obsolete inventory for those products replenished based on downstream consumption. This will improve cash flow and cash conversion cycle time, and it will reduce write-offs due to obsolescence.
Gartner concludes that "Supply chain leaders need to select a portion of the business, develop the business case for change and conduct a pilot as proof of concept to becoming truly a demand-driven responsive supply chain. Once this pilot proves the business case, expand to other parts of the business to reap the full benefit potential of aligning supply execution with downstream consumption. Use this pilot to help with the change management issues of moving from a forecast-driven replenishment model to a demand-driven one."
Do you see consumer goods companies increasingly focused on "demand sensing?" What does that term mean to you? Let us know your thoughts at the Feedback section (email) or button below.
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