The unexpected is to be expected

There are forecasts in consumer economies of more than the usual reduction in demand occurring after the 2025-26 peak period of consumer sales. Having delivered products to retailers for the peak period, what comes next for suppliers and their suppliers?

As an economy slows, the user markets have time to evolve and so do companies. Non-performing products are eliminated, existing products are updated and new products released. These decisions can affect inventory of products that are in the sales channels and input materials that were scheduled or ordered against optimistic forecasts passed ‘over the wall’ between departments located in silos.

Events in one or more countries, industries or companies (especially at Tier 2 suppliers and below) can contain inter-dependent connections and decisions that can affect an organisation’s supply and demand patterns.

With unknown change in consumer demand and input supply, some commentators are proposing that businesses reorient their trade lanes, shorten supply lines by ‘on-shoring’ or ‘near-shoring’ and insource manufacturing back to the enterprise. While some companies could do this, it is unlikely for the majority, given the time and resources required for a response to short term changes in economies.

Also, too many commentators assume that installing AI will improve supply chain outcomes. However, if structure, process and strategy are not clear and understood, AI will not improve outcomes. The effectiveness of an organisation’s supply chains can also be held back by the executive group not understanding the concept.

A low cost initiative

A supply chain is not an object that you can touch. It is the external and internal environment in which products and their constituent parts are moved and stored. It relies for its success on the theories and techniques used in Procurement, Operations Planning and Logistics.

A business can reduce costs and gain effectiveness by reviewing where (and how) their supply chains work or do not work. This is done with the aim to provide Availability of products for customers and end users and a longer term demand and supply plan (the Sales & Operations Plan) that communicates bad news (and good news) through the process.

In the ‘olden days’ of ‘total quality management’ (TQM), the technique known as ‘rivers and rocks’ was used to identify the barriers to quality in an organisation. In the discussion of supply chains, the terms flow, upstream and downstream continue the river analogy. As supply chains are reliant on demands in user markets and from customers, these terms have been incorporated into the River of Demand technique.

Source: Supply Chain Insights

The River of Demand is a diagram that provides a visual representation of how the ‘demand signal’ for a need flows through an organisation’s supply chains structure to delivery, measured by DIFOTA – delivery in full, on time, with accuracy.

To draw their organisation’s river of demand, participants insert onto a representation of a river the: barriers (islands and rocks), turbulence (internal politics), eddies (changing policies) and dams (filters or roadblocks) that can occur in the processing of demand data within the business.

The diagram also identifies the time taken in the process for the demand signal from user purchases to reach the tactical planners, then operational schedulers and execution dispatchers and how the demand signal can become distorted.

The diagram is drawn by people from within a business with a ‘need to know’, accepting that no two views are likely to be the same, as internal politics and personal issues govern the process more than technical considerations. For the Supply Chains group, the underlying position is to ‘plan for capacity and execute against demand’:

• ‘Plan for capacity’ requires an understanding of the capacity requirements for the base level of demand and the flexible capacity available (internal and external) to address peaks in demand
• ‘Execute against demand’ requires reductions in time (which increases capacity), including:
  • reductions in operational set-up times and batch quantities
  • reduction in lead times controlled by your organisation – receipt of orders from customers, the receipt of items from suppliers, moving items through operations and deliveries to customers

This approach incorporates two elements of inventory planning; the Order Decoupling Point between ‘demand pull’ and ‘product push’ in product and materials flows and inventory positioning (location, form and function) within the organisation’s core supply chains.

Supply Chains are Planning Flows

An important input to the River of Demand is the analysis of sales data, classified into flows. This analysis is the Coefficient of Variation (CoV), discussed in an earlier blogpost which identifies the outbound supply chains. So, organisations do not have one outbound supply chain, but at least six. And the number of inbound supply chains is governed by the number of input item categories.

The River of Demand activity is therefore designed to help organisations understand that demand has multiple flows of goods and data to be managed. Based on the CoV the Supply Chains group can identify the techniques within each discipline to be applied for each supply chain.

To reduce any confusion among senior management, it is best that the term ‘supply chain’ is not referred to, instead use the plural ‘supply chains’. In addition, a ‘supply chains network’ has a wider scope, which in addition to Tier 1 suppliers and at lower levels if known , includes original design manufacturers (ODMs), contract manufacturers and logistics service providers (LSPs).

For there to be improvements from a River of Demand exercise, it requires a behaviour change that accepts co-operation, co-ordination and collaboration between functions of the organisation. Without it, the planning process will not be effective, regardless of computer systems, processes and the capabilities of individuals.