Supply Chain Synchronization: Matching Supply and ACTUAL Demand

learningOne of my favorite parts of being an analyst and a columnist for Logistics Viewpoints, aside from expounding on omni-channel retail and supply chain logistics trends and technologies, is the opportunity to learn. As much as I may know about supply chain logistics, there is always room to learn. I learn from my peers, and co-authors, Steve Banker and Clint Reiser, and the rest of the analysts at ARC Advisory Group. I learn from software suppliers when I take a deep dive into one of their offerings or debate where they stand in the market.  I learn from end users who take my surveys and present at conferences I attend. And I learn from my peers in the supply chain industry. One such person is James Cooke, former editor at DC Velocity, and a co-presenter with me at last year’s CSCMP annual conference in San Antonio. Steve Banker recently gave me a copy of James’ book Protean Supply Chain: Ten Dynamics of Supply and Demand Alignment.

As I started to read the book, the first chapter brought up a subject I hadn’t really thought too much about: supply chain synchronization. According to Cooke, supply chain synchronization “means that companies would make only the exact number of goods necessary to meet actual customer demand.” While it’s a term I recognize, it’s not something that I’ve written about before. The key piece of this definition is “actual customer demand.” Traditionally, most companies have used historical purchase data to develop a forecast for the replenishment of goods. And while many companies were quite good at producing a forecast, it is still an educated guess at best. It does not account for market disturbances that can significantly disrupt both consumer demand as well as the overall supply chain. Two of the technologies that Cooke mentions that play a significant role in moving closer to actual supply chain synchronization are inventory optimization and workforce management. These are two technologies that I know well from my recent omni-channel fulfillment survey, completed in conjunction with James and DC Velocity.

Inventory optimization technology enables companies to balance their inventory levels with customer demand. Market conditions, such as economic factors, supplier relations, and fluctuating and seasonal demand for products, impact inventory management. However, the use of multi echelon inventory optimization software can help companies to identify the appropriate amount of stock needed at stores, warehouses, and distribution centers. By carrying less physical, companies can reduce their inventory carrying costs and become more profitable. By matching supply with demand, the customer is able to find the product they need / want, and the organization can fulfill it through the appropriate channel. This is how companies get closer to matching manufacturing output to actual demand. Unfortunately, this is a technology that is under-utilized by too many organizations.

The workforce management application ensures that the proper staffing levels are in place at all points of the organization. Some of the key components of a workforce management application include time and attendance, talent management, scheduling, and labor management. By using this technology, companies can ensure they have the right employees performing the appropriate tasks every day. It also ensures that the company will have the right amount of people to get the job done. This is especially important for balancing supply and demand when it comes to manufacturing. Companies can use this software to make sure they can produce, package, and ship all the goods they need to without an excess or shortage of labor, resulting in increased costs. Workforce management software is one of the most used technologies when it comes to omni-channel fulfillment practices.

The use of advanced demand management tools have already begin to move the needle towards supply chain synchronization for many companies. According to research from the book, nine leading CPG companies in the US were able to reduce forecast errors by 40% or more in a two year period. While that sounds like an amazing performance turnaround, it shows the unreliability of developing forecasts the old fashioned way. Companies need to leverage the massive amount of customer data on hand to get the big picture on what they actually need from an inventory standpoint. Especially given today’s global economy, companies need ensure a seamless flow of goods from manufacturers to the end consumer, without carrying excessive (and expensive) amounts of inventory. This one statistic shows that while the process is by no means a fast one, using real data to bridge the gap between supply and actual demand, and realistically synchronizing the supply chain, is becoming more of a reality.