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A NEW DEMAND-BASED
APPROACH
A more customer-centric form of
networked planning is required.
Such networked planning decreases
purchased cost, which amounts to half
TABLE 1
SUPPLY VS. DEMAND VIEW OF THE ECONOMY
Customers
Demand
Products
Operations
Finance
Organization
Supply View
Demand View
Demographics
Linear, simple
Few, commodities
Reactive
P&L focused
Functional silos
Value factors
Volatile
Exploding variety
Simulated
Balance sheet focused
Collaborative teams
FIGURE 1
DEMAND-BASED SUPPLY APPROACH TO SUPPLY CHAIN
MANAGEMENT
Value Spaces
Time Advantage
Customer
Centric
Delivers Value
Focus
Means
Methods
TABLE 2
FIVE FUNDAMENTALS OF DEMAND-BASED SUPPLY
Fundamental Principle
Improves
Value spaces
Customer centricity
Families
Throughput
Rates of demand
Competitive edge
Goal setting
Communications
Performance metrics
Planning
TABLE 3
VALUE SPACES
Traditional Approach
Business Type
Retail
Food service
Club
Value Approach
Need States
Growth
Mature
Firmographic
Size
Region
Behaviors
Business practices
Cash flow approach
Products/Services
Full line
Broker
Specialty
Attitudes
Aggressive toward
the consumer
Product/Price
FIGURE 2
CUSTOMER CENTRICITY
(Operational Goals Are Set and Communicated in Four Steps)
Grouping
Customers
by Value
1.
Value
Creation
2.
Value
Differentiation
Values
Desired?
DBS
Setup?
3.
Value
Delivery
Metrics?
4.
Value
Solutions
New
Service
Methods?
FIGURE 3
FIVE MANAGEMENT PROCESSES OF DBS
10
Demand
Management
Monthly
By month, by family
Calculates shifts required
Calculates pre-build
Performance
Data Base
Cycle
Planning
Weekly
By shift for three weeks
Sequences families
Capacity
Balancing
Data
Shipments history,
production, and
past plans
Cumulative actual
By family
By season
Rate Mix
Planning
Daily
By family
Into SKU detail
2.
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TABLE 4
DEMAND-BASED VS. ERP-BASED S&OP
Function
Demand
Management
System (DMS)
Benefit
Current Approach
Demand planning
Families
Focuses on forecast
for demand only
Trend analysis
Capacity balancing
Stabilizes
production using
rates
Not related to
production
Production
DMS
Balanced to demand
within constraints
Assumes capacity is
available
immediately
Inventory
Deployment
Inventory standards
To demand rates
using simulation
To statistical
forecasts at a SKU
level
Inventory
management
Simulation
Allows inventory to
float in a range
FIGURE 4
PERFORMANCE DATA BASE
Data from
ERP,
Marketing
CRM,
DRP,
etc.
Screened to
capture new
and
unassigned
data
Looks for
missing data
and
completeness
All Active
Data
Assigned
by
Family
Value
Space
Business Plans
History
Inventory
Shipments
Variable cost
Throughput
Service
Key metric data
Outputs
Graphical
Tabular
Trend
Scatter
IMPORTANCE OF
INVENTORY STANDARDS
Inventory standards are a barometer of
demand. In DBS, inventory is deployed,
rather than replenished. The deployment
calculation is accomplished using
simulation modeling, with the CBD
charts setting the future rates of customer
demand. This simulation sets an acceptable
range for inventory, rather than a fixed
floor like the safety stocks in traditional
ERP systems.
Safety stocks could be the one most
significant reason why ERP systems
continue to perform so poorly, even to the
FIGURE 5
CAPACITY PLANNING CHART
100%
Cumulative % of Total
2nd
Should be
Should be
Actual
1st
Actual
0%
1
10
11
12
Time
Note: Starting point is mid point between seasons.
TABLE 5
INVENTORY DEPLOYMENT IN DBS VS. ERP
(Optimizes Inventory Deployment, Uses New Inventory
Standards and Eliminates Safety Stock)
DBS
ERP
CONCLUSION
But there is more than enough good news.
The changes outlined here require a shift
in internal organizational culture, rather
than deep structural changes. Orchestrated
planning liberates the organization from
stilted thinking and overprotection of turf.
DBS forestalls the re-engineering of the
physical plant and the organization chart.
If done well, DBS allows a company to
(rburrows@opgmail.com)
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