In today’s disruptive and competitive environment, organisations are increasingly facing demand variability challenges. If not properly managed, these variations can mean increased costs, decreased revenues, increased risk and reduced profit margins. The solution is not simply to ‘improve planning’ but rather to have a wider focus which places the emphasis on building more agile, flexible and responsive supply chains.
For almost a decade, respondents to the annual Gartner Supply Chain Technology User Wants and Needs Study have listed demand variability as one of the top challenges affecting the efficient management of their supply chains. This applies to organisations at all maturity levels. The four major causes of demand variability are volatility, uncertainty, complexity and ambiguity.
Inaccurate demand plans can also result in what’s known as the ‘bullwhip effect’, a situation that occurs when changes in customer demand have a cascading and incrementally negative effect on the entire value chain. Essentially, it is a result of uncertainty in the supply chain where demand is altered and orders increased to build safety stocks and protect supply.
The bullwhip effect
By removing uncertainty in demand, safety stocks — and thus the overall inventory levels — can be greatly reduced. Potentially unfavourable outcomes are greatly mitigated by organisations that develop the best possible demand plans.
Following are seven strategies and tools you can use to improve your demand variability management:
1. Implement a demand-driven value chain
Adopting a demand-driven value chain, where the actual demand for products drives the supply chain instead of the other way around, often leads to better management of demand variability.
2. Reduce lead times
Finding ways to reduce lead time from sources of supply allows you to react quickly to changing demand. Long lead times also increase the probability of a bullwhip effect.
3. Use buffers
Timely review and proactive adjustments of the three buffers – inventory, time and capacity – ensure better handling of demand variability.
4. Focus on supply chain visibility
Having good visibility of both demand and supply enables an organisation to manage demand signals more accurately, respond to customer requests faster, and smooth the effects of demand variation.
5. Learn from past experiences
Contextual frameworks that provide materials planners with insights and lessons learnt from past experiences allow for demand variability to be effectively managed when similar instances reoccur.
6. Create an action plan for managing volatility
Having the capacity and the capability to respond in a timely fashion to any noticeable interruptions in the supply chain will effectively address volatile demand.
7. Align supply and demand management
Effectively balancing and aligning demand management with supply management enables both functions to quickly react to changing realities – be it a sudden demand surge or an unexpected supply disruption.
Taking the right approach to the planning side of your business can greatly reduce the processes needed to deal with the variability on the execution side of the business. It’s therefore vital to make sure that all the pieces of the puzzle fit together. Most importantly, invest in your people and allow them to use their experience to fix the broken processes first before randomly adding new ones.
Read Demand planning delivers commercial certainty for Lion to find out how the success the company achieved across its Operations function was replicated in its demand planning practices.
|The TRACC framework helps organisations build standardised and integrated good practice and performance capacity across their Plan, Source, Make and Deliver functions. Simultaneously it accelerates their collaboration and alignment capacity to build world class end-to-end value chains, enabling the organisation itself to become the ultimate source of sustainable competitive advantage.|