Demand driven supply chain (DFDC), also referred to as demand-driven supply chain (DFDC), is a methodology of technology and processes that sense and respond to current real-time demand within a complex network of people, goods and machines, this is facilitated because of the reduction in cost of doing business. DDC reduce costs by controlling the delays that occur due to unmet demand by choosing to operate at optimal times of the day and night. The key to successful DDC’s is understanding demand properly, establishing a good working capital management system and developing the ability to adopt new techniques and improve processes. With these three key elements, any enterprise can achieve the ultimate goal of cost reduction, quality control, flexibility and growth while maintaining a competitive edge in today’s marketplace.
In most cases today’s supply chains run on a demand-to-supply basis. Therefore if the demand for a product goes up, the supply should also go up. The key to successful DDC’s is having an accurate forecast of future demand, an information flow that is smooth all the way through the supply chain. Information that is provided by the suppliers to the manufacturers is analyzed to identify where additional manufacturing should take place so that the company can plan to make the necessary investments in equipment and manpower. Once this information is analyzed, the system starts to implement strategies to meet the increased demand. The key to success is good demand forecasting capability and the ability to forecast customer demand accurately in real time.
Another element of the demand-driven supply chain is the ability to establish a balance between demand and supply. When demand for a product goes up, it may be necessary to produce more of that item to meet the demand. The challenge is to determine what is a demand constraint and what is a supply constraint. Often times what is perceived to be a demand constraint is really a supply constraint due to low levels of available raw materials. This means that the higher the demand for a particular commodity, the lower the supply of that commodity relative to demand.
The element of demand planning is fundamental to any supply-and-demand driven supply chain. Inventory levels must be adequate both to meet current demand and to allow for future demand. To help determine inventory requirements, it is often necessary to take inventory of all raw materials, finished goods and components as well as the existing inventories held by the company. Creating a comprehensive inventory management process with built in decision making tools and a detailed inventory plan is critical to the success of any operation. Many companies are able to effectively manage their inventories using a combination of tools such as asset management, demand planning and project management.
Many companies fail to properly manage their inventory levels because they attempt to meet too many demands using too many resources. In a demand driven supply chain inventory levels become a major problem. Companies quickly learn that it is much more efficient to sell product to wholesalers at the same time that they are buying it from their own factories. If there is not enough inventory on hand to meet both demand and supply, there will be a loss in profits and business activity. This is referred to as the bullwhip effect.
While there are multiple ways that the bullwhip effect can occur, the main means involves the use of demand planning. The main function of demand planning is to provide a framework within which distributors can agree on the appropriate timing for when to enter or exit a supply line. If distributors enter the supply line too early, they may face a problem as they may have completely overstocked their factory with products and no room for new production. On the other hand, if distributors exit the line too early, they may not be in a position to clear their shelves of inventory once it becomes available.
This is one reason why many companies choose to partner with a manufacturer that has its own in-house orchard. A manufacturer often has the knowledge and expertise needed to properly evaluate and monitor all aspects of their supply chain including lead times. A manufacturer has the ability to listen to the data that is being sent back and forth between their warehouse and factory as well as to their distributors. If a manufacturer is able to understand the nuances of the data being sent back and forth they can ensure that lead times are accurate and the balance of available inventory is maintained.
In conclusion, there are several key factors that affect supply chain management. One such factor relates to demand volatility. Volatility refers to the level of change in actual demand that occurs in any supply chain process. If demand varies by even a small amount in any given supply chain process, it can greatly impact that company’s ability to maintain adequate inventories on hand. By understanding how demand varies and being able to anticipate the impact that changes in demand will have on an inventory’s lead times, companies that are not experiencing significant demand volatility can counter the problem by working to maintain a balanced supply and demand environment.
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