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NEXT GENERATION
SUPPLY CHAIN
MANAGEMENT

DRIVEN BY DEMAND

D elivering just what your customers need, when they need it, isn’t easy. But some
leading companies are combining strategy, business processes, and technology to
create what’s known as demand-driven supply chains — a highly efficient mode of
operating that scores a perfect 10 for businesses and customers alike.

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Demand-driven supply network

Manufacturers have long planned their operations based on factory capacity and asset
utilization. By reviewing what sold in the past and factoring in production capacity
for a given time frame, companies plan and execute their production strategies — then
they “push” the resulting goods to their customers.

Photo: Chris Stanford

But some leading companies are taking a new view: allowing
customer demand to drive supply chain planning and
execution. This approach, what AMR Research calls the
“demand-driven supply network,” or DDSN, uses a system of
technologies and processes to sense demand and react to it in
real time, across a network of linked customers, suppliers, and
employees. The financial results can be dramatic. What’s more,
DDSN pioneers also develop superior responsiveness that
enables them to take advantage of market opportunities
and, in some cases, disable or crush their competitors.
“Leading companies are embracing DDSN,” explains
Greg Aimi, research director of the supply-chain management
practice at AMR Research Inc., in Boston. “They realize that
this is how they can deliver a higher-margin product to their
customers, with less working capital, greater profits, and
increased earnings per share. And that’s pretty compelling!”
In fact, a recent study by AMR Research revealed that
companies that excel at demand forecasting, called leaders DDSNs can improve overall company performance, says Pete Sinisgalli,
CEO of Manhattan Associates.
in the report, have 15% less inventory, 17% stronger order
fulfillment, and 35% shorter cash-to-cash cycle times than chain strategies to support different customer segments to
typical companies. In addition, achieving a balance between add value to the customer.”
the cost and service tradeoffs of supply chain excellence nets
companies 60% better profit margins and two to three times GOING FOR THE GOLD IN SCM
the return on assets achieved by “laggards.” So what exactly is DDSN, and how does it differ from tradi-
DDSN is not just about financial improvement; it also tional supply chain orientations? AMR Research characterizes
helps companies better serve their customers. Rexam, a DDSN as “a supply chain driven by the voice of the customer,”
top-five global consumer packaging giant based in London, a next-generation supply chain that is built to serve “the down-
is incorporating customer demand signals in its supply chain. stream source of demand rather than the upstream supply

“It’s very important that we add value to our customers’

operations and take cost out.” — Bo-Inge Stensson, Rexam
With customers such as Coca-Cola, Heineken, L’Oréal,
Bacardi, and Nestlé, the $4.3 billion company runs operations
in more than 100 facilities, serving five business sectors in more
than 20 countries. The company also is the largest beverage
can manufacturer in the world. “All customers today want
more for less,” says Bo-Inge Stensson, global supply chain
director for Rexam. “It’s very important that, whatever we
do, we add value to our customers’ operations and take cost
out. As part of that effort, we are developing different supply
constraints of factories and distribution systems.” It tightly
links the management of demand with that of supply and
product, allowing manufacturers to understand and act on
changes in each area at once.
The Holy Grail of DDSN is a company’s ability to deliver
the so-called perfect order — an order that arrives with the
right goods, at the right time, in the right place. The perfect
order delivers optimum customer satisfaction, which in turn
improves business metrics.

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“The benefit of a demand-driven solution is an improved
overall company performance,” says Pete Sinisgalli, CEO of
Manhattan Associates Inc., a maker of supply-chain execution
and optimization software based in Atlanta. “Companies that do
this achieve better customer satisfaction, higher profitability, and
“Companies can become more nimble as they develop a flexible
ability to deliver on demand.” — Greg Aimi, AMR Research
lower capital investment in undesirable inventory. Those are all
benefits of being able to listen and react more quickly to specific
customer demand. As opposed to historical supply chain solu-
tions that improved a business process within the supply chain,
the appeal of demand-driven solutions starts with the customer.”
Not working to create the perfect order also has conse-
quences. “Companies that are not focused on the needs of their
customers run the risk of having the wrong products in the wrong
place at the wrong time,” says Jim Ritchie, CEO of Meridian IQ,
Inc., a global-logistics management unit of Yellow Roadway
Corp., in Overland Park, Kan. “If you can create more of a
customer-demand driven supply chain and you can respond to
DDSN–The 21st Century Supply Chain
chart ▼ ▼
DEMAND SUPPLY
▼
▼
▼ which they are beginning to collaborate; and companies with
PRODUCT
▼
In DDSN, production must be tightly linked to supply and demand.
Source: AMR Research 2004
market dynamics more quickly, you can reposition the right
products in the right place at the right time. That delivers not just
a market advantage, but a superior financial advantage as well.”
CREATING A WELL-COORDINATED TEAM
Companies are clearly interested in incorporating demand into
their SCM planning and execution. “Customers are recognizing
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that the spot improvements made in the last 10 to 15 years
to supply chain operations are not enough to sustain a
competitive advantage in today’s economy,” says Carol A.
Ptak, vice president and global industry executive for man-
ufacturing and distribution industries at PeopleSoft Inc.,
Pleasanton, Calif. “Operational improvements deliver only
a short-term, one-shot benefit. But when you exploit that
capability that you’ve developed internal to your four walls
and use it to provide value to your customer — at a profit to
yourself —that’s what delivers the big ‘wow!’” (In fact, Ptak
says that many companies that have successfully incorporated
DDSN approaches are reluctant to discuss their resulting
improvements — not because they are afraid of sharing
competitive secrets, but because the benefits are so huge, they
fear no one will believe them.)
Making the transition from planning according to what’s
best for the factory to planning to meet customer demand is
no small adjustment, though. “This is a change in orientation,”
says AMR Research’s Aimi. “It’s a business process change for
many companies that requires them to break down the silos
within the organization so they can collaborate between
sales, logistics, procurement, and operations.” The proficiency
with which companies execute DDSN can be measured in four
stages: beginners that have almost no integration along the sup-
ply chain; companies whose enterprise is connected internally;
enterprises connected externally to business partners with
multi-tier integration, which supports demand visibility and
supply chain collaboration.
The transition to DDSN is made more complex by
the increasing use of global outsourcing practices in many
manufacturing segments. When components or assemblies
are outsourced to suppliers, the degree of complexity multiplies
exponentially — after all, your supplier’s suppliers can affect your
ability to meet customer demand. Electronics manufacturers,
for example, have extremely complex supply chains in
which they subcontract operations to suppliers and contract
manufacturers around the world.
“As companies outsourced their production to contract
manufacturers while needing to maintain relationships
with key component suppliers behind them, supply chains
became much more complex,” says Chris Smith, CEO of
RiverOne Inc., an Irvine (Calif.) provider of supply-chain
management software to manufacturers. “The value-added
contributions to the final product come from more companies.
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As a result, there is a real gap in the market in understand-
ing how to put supply chains back together and make them
run smoothly again.”
Another concern, especially in the transportation and
logistics end of the supply chain, is the need for speed and
efficiency — especially across the global network. “With the
advent of global sourcing, the supply chain is now longer,” says
Ritchie from Meridian IQ. “Shipments often must travel
farther distances in shorter amounts of time, with greater
predictability and visibility.”
The demand-driven concepts represented by DDSN
extend beyond just parts and material goods; some companies
“Shape your strategy to meet your customers’ needs, and you
won’t go wrong.” — Carol A. Ptak, PeopleSoft
apply them to the human resources that contribute to the
creation of a deliverable. “Even project-based service com-
panies need to place the right human resources at the right
place at the right time,” explains Rick Lowrey, executive vice
president of Deltek, a software developer for project-based
businesses and professional service firms, based in Herndon,
Va. “These companies also need to deploy critical resources
in a real-time mode.”
SUPPLY CHAIN CLARITY
A VIEW ON FLEXTRONICS’ SUCCESS
S
upply chain complexity has multiplied exponentially in
all markets, but nowhere is the mix of design, manu-
facturing, and assembly more intricate—and delicately
balanced—than in the electronics industry. With global
outsourcing splintering manufacturing processes into ever-small-
er specialties, partners in an electronics supply chain require
unprecedented levels of collaboration and communication.
At Flextronics, the world’s leading electronics manufac-
turing services (EMS) provider, headquartered in Singapore,
achieving a better understanding of volatile fluctuations in cus-
tomer demand has contributed to its success. The $14.5 billion
global company, which contracts with as many as 2,500
suppliers in 32 countries, coordinates design, engineering,
manufacturing, and logistics operations across its network for
leading original equipment manufacturers (OEMs). “We
needed to collaborate with our suppliers regarding our
requirements in a more efficient way,” says Mike Webb, CIO
for Flextronics. “By continuously becoming more agile and
reacting more quickly when customer demand changed, we
could reduce customer supply chain costs and avoid predica-
ments with excess inventory.”
Flextronics worked with RiverOne Inc., an Irvine (Calif.)
provider of supply-chain management software for manufac-
turers, to develop a new tool: FLEXPASS, a clear, integrated
technology platform that enables Flextronics to collaborate
FILENAME HERE CMYK VERSION 00
INFORMATION IS POWER
Rexam, the consumer packaging company, understands
that making the change to DDSN requires a comprehensive
strategy buoyed by information technology. The company
recently entered into a strategic partnership with software
maker SAP AG, based in Walldorf, Germany, to use tools that
would help the company integrate upstream and down-
stream, with both customers and suppliers.
“To make this work, we must create visibility in real
time,” says Stensson. “When an event is triggered down-
stream with our customer, we must know it — but so must
our suppliers and our suppliers’ suppliers.” Without
this information, partners throughout the supply chain
can experience a bullwhip effect, in which disruptions
intensify throughout the chain. This can negatively affect
cash-to-cash cycle time.
Rexam is taking another key step: working to under-
stand the business processes that make up the supply chain
interactions with its suppliers and customers. “When you try
to integrate with your customers and suppliers in the supply
Photo: David Toerge
quickly and easily with its
supply chain partners.
FLEXPASS links RiverOne
technology with Flextronics’
enterprise resource planning
systems. The result is an envi-
ronment where suppliers can
view demand changes, adjust By reacting more quickly to changing
production plans, and share customer demand, Flextronics is reducing
information about delivery supply chain costs and excess inventory,
says Mike Webb, CIO.
dates and volumes.
“With FLEXPASS, we’ve enhanced our supply chain
clarity,” says Webb. “The platform clearly indicates changes in
requirements in a very timely manner, sending messages to
our supply chain partners that keep everyone informed.”
Currently more than 700 of Flextronics’ suppliers are linked
to FLEXPASS, with the remainder scheduled to come on line
in the next year. Although specific business improvement
metrics are confidential, Webb confirms that the platform has
delivered substantial benefit to Flextronics.
“Materials management is one of the most important
cost considerations in the success of our manufacturing
operations,” he says. “FLEXPASS has provided tremendous
value by enhancing our communication with our customers
and business partners and avoiding unnecessary costs.”
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chain, you need to understand the business processes and
try to optimize the future state,” he says. “That is extremely
important. Otherwise, you can find yourself automating bad
processes.” Rexam is using Lean Enterprise and Six Sigma
management initiatives to align supply chain processes.
Aimi of AMR Research argues that the first step in
making a successful transition to demand-driven supply
chain practices is to develop corporate supply-chain strategies
at the executive level. Company leaders must focus on gath-
ering more detailed demand-oriented information, and
breaking down the silos that separate departments is a first
step. Establishing a sales and operational planning (S&OP)
team that meets frequently to share this information can help
a company integrate the planning of production, procure-
ment, logistics, and sales information. This in turn will help
the organization orchestrate the company’s delivery capacity
so that it matches customer demand.
The second step is to understand or create cross-
functional best practices that frequently review and assess
production against demand. A typical planning window
might be 120 days. When production is planned to meet
demand, the time frame shrinks to monthly, weekly, or even
more frequently. “In this way, companies can become more
nimble as they develop a flexible ability to deliver on
demand,” Aimi says.
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GET THE RIGHT GEAR
Although the shift to demand-driven supply chain processes
is not strictly a technology fix, there are software and tools that
can support the transition. According to AIM Global,
a trade association for automatic identification and mobili-
ty, radio frequency identification (RFID) is the next step in
reading demand signals closer to product consumption.
Enterprise resource planning vendors are using their
strengths in transaction processing to support information
exchange among companies across the supply network.
Whichever technology you consider, it makes sense to look
for one with the flexibility to serve not only today’s needs, but also
tomorrow’s. Look for a technology that is flexible and adaptable.
The architecture should be open and standards-based, which will
allow a company to add and subtract components as needs change.
It’s not necessary, however, to buy and implement all the
supporting technology at once. “If you choose a modular solu-
tion, you can pick the parts that will have the greatest impact
on your supply chain operation and implement them over
time,” explains Sinisgalli of Manhattan Associates. “As each
area of the supply chain is optimized, the savings generated can
be used to fund the next area.”
It is critical, though, to make sure each component can be
integrated into a uniform whole —parts that communicate with
one another and that provide visibility across the enterprise.
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your customers as their needs change —

Photo: Antony Nagelmann

and contribute to your own success.”
One caveat: there is no fixed formula
for creating a DDSN that will work
for every company. Just as each organi-
zation has individual goals and strengths,
the strategies for incorporating demand
signals into the supply chain must be cus-
tomized. “Software companies may
try to push the idea that there is one
‘right’ answer, but the reality is that each
organization is unique,” says Ptak of
PeopleSoft. “Concentrate on shaping
your strategy to meet your customers’
Outsourced manufacturing is increasing the
complexity of supply chains, says Chris Smith,
needs, and you won’t go wrong.”
CEO of RiverOne. At Rexam, the work of shaping its
supply chain operations to be more
“Many companies find themselves with demand-oriented continues. The com-
solutions that have been cobbled together pany has adopted strategic projects to be
over time,” he adds. “These do not easily executed enterprise-wide, and it is also
provide either visibility or optimization.” investigating the use of new technologies,
like RFID, in small pilot implementa-
PLAY TO YOUR STRENGTHS tions. “We are constantly looking for
Companies may also want to involve areas where we can add more value
their customers and business partners in to our customers,” says Stensson. “The
determining which changes to make. consolidation of the markets means that
“You can ask your customers what they supply chains compete, not companies.
are comfortable with in terms of providing It’s very important to create alliances with
access and sharing information to satisfy your customers. Our goal is to integrate
their needs,” says Smith of RiverOne. more and more into the customers’ plan-
“With the right foundation in place, you ning systems. It’s the only way to succeed
can build incrementally, growing with in the current environment.”

WEB DIRECTORY ABOUT AMR RESEARCH

AIM Global AMR Research provides world class
http://www.aimglobal.org research and actionable advice for
http://www.rfid.org executives tasked with delivering
AMR Research Inc. enhanced business process perfor-
http://www.amrresearch.com mance and cost savings with the aid
of technology. Five thousand leaders in
Deltek http://www.deltek.com
the Global 1000 put their trust in AMR
Manhattan Associates Inc. Research’s integrity, depth of industry
http://www.manh.com/businessweek expertise, and passion for customer
PeopleSoft Inc. service to support their most critical
http://www.peoplesoft.com business initiatives, including supply
chain transformation, new product
RiverOne Inc. http://www.riverone.com introduction, customer profitability,
Meridian IQ Inc. compliance and governance, and IT
(a division of Yellow Roadway Corp.) benefit realization. More information
http://www.meridianiq.com is available at www.amrresearch.com.

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