SCDigest Editorial Staff
A critical component needed to develop a more “pull-based” supply chain is to be largely driven by actual customer demand signals. Ideally, this should start at “point of sale,” which literally means POS data for retailers and consumer goods manufacturers, but for other sectors, simply means end-consumption data however those transactions occur.
For example, in the medical supplies market, it is currently difficult to impossible to actually receive data from health care facilities about product consumption. Manufacturers in those markets generally can hope, at best, to get shipment data from distributors as a means to gauge actual demand.
Lately, a new term called “demand sensing” has entered the supply chain lexicon. What is demand sensing?
According to Lora Cecere of AMR Research, demand sensing involves the translation of downstream data, with minimal latency, to understand what’s being sold (product attributes), who’s buying the product (customer attributes), and the effect of demand-shaping programs to increase revenue.
“Companies good at demand sensing have minimal latency when sensing actual customer demand and translating it into the supply chain response,” Cecere wrote in a recent AMR research note.
The reality is that even in most consumer goods companies, recent sales data is not well used to drive short-term planning processes. That is starting to change. Procter & Gamble, for example, found substantial reductions in out-of-stocks and inventory levels during a pilot program for new demand-sensing technologies, which lead to a planned roll-out across the company. Based on this demand sensing intelligence, P&G says it may actually adjust the next day’s production schedule 2-3 times to get it more in synch with actual customer pull.
In the consumer goods industry, “With traditional supply chain processes, it takes 7 to 14 days for shelf takeaway to translate to demand in the form of a retail order to a supplier,” Cecere says. “There is lag time accompanied by the bullwhip effect. The more demand shaping — that is, price changes, trade promotion, new product introduction, and sales incentives — the more acute the problem. For example, a 30% increase in sales during a promotion may translate into an order for 30% more product the following week. However, there could be (and often are) massive out of stocks during the promotion. Once the promotion is over, the replenishment order is usually overstating requirements.”
(Supply Chain Trends and Issues Article - Continued Below)