Reducing Supply Chain Agility to Better Capture Demand

Over the last three decades we’ve moved from maximizing resource utilization to operating demand-driven supply chains. So you can imagine my surprise when I heard a leading process manufacturer in a supply constrained environment, one that sells to large businesses, was considering returning to a fixed production schedule. The justification for the change – high demand variability and poor forecast accuracy – only furthered my disbelief.

You may wonder, what’s the value of an agile supply chain response when demand is unpredictable?

When there’s demand uncertainty, what’s managed is supply and so greater flexibility would increase the likelihood of capturing a greater share of the demand.

But a more nuanced consideration reveals that agility comes at a cost and the benefits of an agile supply chain response quickly plateau when demand is unmanaged.

This manufacturer hadn’t seen better customer outcomes, even after incurring the cost of frequent changeovers. Orders came in too late to be delivered in full or on-time, operating at full capacity meant that for every prioritized customer there was another underserved, and they weren’t getting a price or relationship premium for their flexibility.

In supply chain planning, parameters and constraints like capacities, lead times and transportation lanes are often predetermined. But over the last decade we learned no constraint is truly final and through imagination, time and expense constraints can be relaxed or “elevated.

Demand is not unchangeable but rather a behavior that’s subject to influence. Rebates and promotions that mutually benefit the customer and supplying enterprise are one way to do this. Timely feedback for B2B customers on the feasibility of their consumption plans is another.

A fixed or nearly-fixed production schedule provides supply guidance to key customers, while encouraging sharing high-level demand forecasts earlier. Companies can leverage the time and organizational energy freed from reduced escalations and fire-fighting for investing in better forecasting capabilities.

Companies that are challenged managing demand should:

  1. Find out what’s known, closer to the origin of demand and faster
  2. Infer what’s unsaid, a capability made possibly by machine learning, but there’s more to staying ahead of the demand curve
  3. Influence what hasn’t yet happened through pricing, promotions and bi-directional collaboration

Without an extensive understanding of the customer, an agile supply chain response may do little good. Returning to a fixed or nearly-fixed production schedule is a fine solution in the short term, so long as it’s in tandem with investments in better forecasting capabilities. Once demand is more predictable and stable, there’s value in returning to an agile supply chain response. 

See how Antuit is helping supply chain leaders generate a precise demand signal and prescribe a unified supply response.

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