The fundamental issue, in the end, of supply chain management, would seem to be to balance supply and demand in a way that maximizes shareholder value.
We’ll debate the proposition more fully soon, but accepting something along these lines for a moment, at many levels we’ve made tremendous progress both as a profession and within individual companies. On the other hand, most of us still have a long way to go.
This column is triggered by a couple of items. First, the continued (relative) troubles at Dell (see Dell Cites Supply Chain Hiccups in Disappointing Financial Results), which at least in part can be traced to some supply-demand balancing issues. If it can happen to this supply chain icon, it can happen to any one.
More substantively, I just attended a “Demand Management” workshop, sponsored by MIT and hosted by Larry Lapide from the university’s transportation and logistics center. The event, attended by a small but knowledgeable group of practitioners, software vendors, and consultants, featured some preliminary research on the topic from Lapide, and a roundtable discussion, kicking off MIT’s new research project on demand management (see MIT Announces New Project to Help Companies Understand “Demand Management”).
The fundamental problem, Lapide noted, is that in most companies the gulf between sales-marketing and supply chain-operations is still very wide. Despite the strong interest of late in sales and operations planning, which in many companies has closed that gap from a little to a lot, the “demand side” and the “supply side” are still viewed as distinct disciplines that touch but don’t fully intersect.
The notion of “demand management,” requires, however, coordinated decision-making among supply chain, marketing, sales and customer service functions.
It’s not an easy challenge. This balancing and decision-making need to be achieved across long-term, medium term, and short-term (sometimes real-time) horizons. Full realization of the concept implies not just chasing revenue and sales growth, but optimal financial and market decisions considering all factors – a discipline difficult for most companies to pursue.
I’d add one thing to the discussion at the roundtable, which at times was centered around maximizing profitability. I’d argue in the end it’s really about maximizing shareholder value, which at times may be best achieved by some sacrifice to profitability, such as entering strategic new geographic or product markets, or building market share. This is the argument Amazon.com continues to use, rightly or wrongly, to defend it’s profit-draining free shipping programs, for example.
I’ll be able to share some more on the roundtable discussion shortly, but a couple of things caught my attention:
- There seems to be very little activity by companies in terms of optimizing service policies by any real segmentation strategy.
- Leading companies are increasingly focused on gathering and processing “qualitative” demand signals, beyond the traditional historical forecast and trend data. But the challenges of doing this well are huge.
- In many cases we lack, as Lapide noted, the type of information about activity-based costs, and product, customer and channel profitability, needed to make optimal decisions.
Lapide recently wrote about this anecdote, which I love. The CEO of Anheuser-Busch looked primarily at one metric when it came to demand management – the level of interplant transfers. Though at first blush this appeared to indicate a relative lack of focus on the topic, upon further review it was brilliant in its simplicity: if transfers were high, it meant plants were producing too much or too little of a given product, or sales territories or regional promotional plans needed to be revised.
Wish it could be that simple for all of us. I’m out of space, but this exercise has spawned about a half dozen topics for further exploration. I’d love your ideas on the subject, or specifics about what you would like to see us research in SCDigest.
Do you think the rise of sales and operations planning has closed the gaps in demand management, or do most companies still have a long way to go? What are the keys to getting it right? What aspects of demand management would you like to see us explore in more detail?