Demand driven supply chain: key considerations for High-Tech industry
What is DDSC?
Demand driven supply chain is based on old premise of building a network based on 'Pull system' and avoids inventory movement by Push methodology. As defined by Gartner, "a demand driven network is based on single sales forecast that drives entire supply chain; from suppliers' supplier to customer's customers". Traditional supply chains maintain inventory balances based on static forecast figures which may result in overstocking for some product-location combination and shortages and even stock-outs at other places. To counter this phenomenon various approaches are being used but many of them can cause 'Bull-Whip' effect in the extended supply chain. With the DDSC approach organization follow various measures to build accuracy in demand signals. Similarly they need to invest in supply side initiatives to build required dynamism in supply balancing.
High Tech Industry challenges:
Most of the high tech industry organizations face great deal of volatility in the business.
• Usually they have short product life cycle, which means they should engineer and introduce products in market rapidly ahead of their competition. Building excess finished goods inventory is not advisable at the same time stock outs may result in losing market-share.
• Most of the high-tech players have multi-echelon global supply chains. Many of them act as OEM (Original Equipment manufacturer) which have network of manufacturing partners and distributors spread across the globe.
• They have different business models such as Made to Stock, Configure to Order, Pick to Order, Buy and Sell etc. Usually they follow postponement strategy and keep stock at the sub-assembly status.
• Some critical components may have very high lead time and need specialized skills which need long term visibility of demand and good supplier relationships.
• Usually inbound material movement and outbound distribution services are outsourced to 3PL and 4PL logistic service providers.
How technology can help enabling DDSC?
With the help of right process and technology organizations can stride for establishing DDSC in true sense. The strategies for DDSC can be broadly classified as Demand side initiatives and Supply side initiatives.
On the demand side
• Inventory Balancing and Distribution requirement planning can help to mitigate risk of stock-outs and excess inventory in the downstream supply chain. Tools such as inventory optimizer and Distribution Requirement Planning helps with great deal of accuracy in balancing inventory.
• Demand Signal repository: Organizations can tap the demand signal at the source of consumption such as POS (Point of Sale) devices, Order orchestration tools and use this demand signal repository to fine tune the forecasts.
• Collaboration with down-stream channel partners with VMI or consigned inventory management can give accurate demand visibility and reduce bull-whip effect.
On the supply side;
• Organizations can increase the planning frequency to get latest demand and supply picture and reduce information latency.
• For intra-day demand-supply changes 'what-if scenario analysis' can prove a lot helpful. This can address supply requirements for hot demands, quantity or need by date changes to high priority demands. Also disruption in supply or logistic issues can be mitigated in timely manner.
• Postponement is effective methodology where inventory is stored in semi-finished status and final assembly is done when firm orders are received.