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August 1, 2012

Supply and demand management: Optimizing the flow

Posted by Vikram Vij (View Profile | View All Posts) at 5:44 AM

We've all seen headline-grabbing stories on supply chain disruptions caused by tsunamis, floods and other natural disasters. These occurrences create volatility that results in manufacturers scrambling for alternate suppliers, production delays and unhappy customers who are quite vocal.  But, I think there as large, if not greater, systemic challenges in supply chain and demand side planning, especially for smaller outfits in emerging economies.

It's all about having the right information for decision-making.  Today, businesses must be able to quickly adapt to rapid market shifts and also accommodate their customers faster than ever.  If they can't, they lose the account, no hard feelings.  On the supply side, emerging markets have lots of suppliers but imperfect information.  Companies take huge risks by switching suppliers if there's little reliable data on supplier performance or financials.  Having automated capability - to manage contracts and determine which suppliers meet the terms -provides insight on competitiveness.  Manufacturers can use this technology to reduce errors, calibrate payment cycle time, and negotiate better prices from suppliers. On the demand side, distributors lack adequate information from their downstream sellers - predominantly mom and pop stores - in emerging markets. The prevalence of small retailers in emerging markets represents a special demand side problem for distributors.  Inventory can lie around for months.  Lack of data exchange prevents retailers from knowing what's in their store inventory or warehouse.  Unsellable inventory can pile up while customers demand out-of-stock items.  
The winners will be those companies best able to leverage analytics in collaboration with their supply and demand supply-chain planning.  Data analytics plays a huge role along with predictive analytics. Changes in supply can be modeled and contextualized to understand impacts. Shop floor technicians can use one dashboard to understand production impacts.  Executives can view another to understand financial effects. Key performance indicators can be shared throughout the organization to keep everyone apprised of performance.  

With operations, let's say, you're dealing with a big machine or a tractor. The cost of the breakdown of those kinds of machines, if it catches you unaware, is huge. There's downtime costs too. Then the time and expense to ship those kinds of parts just in time to fix it. Those are not the kind of parts that you can just put in a UPS truck. What you want to do is predict when things could happen, and act proactively to prevent that kind of a negative scenario.

Empowering  the retailer to automate this information flow, or at least make it easier, will provide a big competitive advantage.   The same sophisticated systems used by large retail chains won't work.  What's needed, in emerging markets, is a simple system where shop-owners can use their mobile devices to provide inputs.   

This would put better information about the supply chain or demand planning at the fingertips of those that need it - literally!  

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