Responding to Demand Volatility

March 5, 2008
A demanding undertaking? It doesn't have to be.

Why the Volatility?

Why such volatility in demand? Succinctly put -- because the consumer is in charge... and they can be a fickle bunch.

Enterprises today operate in an environment of increasing competition and decreasing customer loyalty. Having endless options in price, choice, availability, and so on puts the consumer in the driver's seat. The shrinking adoption rate for new innovations means new products are hitting the market and being snapped up by consumers and businesses faster than at any rate in history. The customer expects what they want, when, where, and how they want it -- no excuses.

The resulting implications of this on manufacturers and brand owners are pronounced. The point of power has shifted from the manufacturer to the customer and demand responsiveness is the new basis of competition. Companies must be empowered to quickly respond to volatile demands - because it they don't, without question a competitor will.

Consider a leading digital camera maker whose ability to meet consumer demand with the right product, at the right time and in the right place is paramount to maintaining their leadership in their acutely competitive consumer electronics market. With consumers always looking for the latest and greatest, they are continually faced with constant product changes and new product introductions, challenging them to effectively manage inventory levels while also ensuring no stock-outs at the retail level.

Likewise, for a large agricultural, landscaping and construction equipment manufacturer, ensuring reliable supply to its dealers and retailers during the company's critical peak season can be a make or break proposition for them. It must be able to understand the impact of continuously shifting demand and quickly determine alternate courses of action to avoid any inventory surplus or shortage conditions.

A major wireless technology provider maintains its market leadership by bringing to market cutting-edge solutions that meet the vigorous demands of its consumers around the globe and staying a step ahead of the competition. Faced with a growing market and increasingly sophisticated customer needs, it requires a flexible and responsive supply chain and fulfillment network to ensure dynamic alignment of supply with ever-changing demand.

What's the Impact?

For those on the front-lines -- the demand managers, customer service reps and sales operations staff charged with understanding true demand and aligning finished good supply accordingly across globally distributed fulfillment networks --- the job is highly stressful and critical to the business. Their role becomes an exercise in balance and compromise, because even in a consumer-driven marketplace, it can't all be about the customer. At the end of the day there is a business to run. While customer satisfaction is certainly a top priority, so are operations performance and revenue metrics.

Unfortunately, most companies are managing demand response across their fulfillment networks by brute force with poor results.

Despite large investments in Demand Planning, Supply Chain Planning and new Sales and Operations Planning (S&OP) tools, decision-makers more often than not, continue to rely on manual efforts, complicated spreadsheets and other makeshift measures when having to respond to unpredictable demand changes.

The challenge of capturing and consolidating multiple, "living" forecasts to understand true demand and translating that into a single cohesive, collaborative decision and response, often prevents managers from realizing the full effects of actions before they are taken.

People are required to quickly make decisions that will have significant impact, but are left scrambling to access the right information, engage the right people and work out the right course of action. As a result, decisions are made every day based on inaccurate data, limited collaboration and ultimately with little to no understanding of the impact or risk across the organization.

Without the right tools, constant changes in supply, demand and product are difficult to manage, impossible to predict, and can trigger a steady erosion of customer satisfaction, margins and market share.

Why Planning Alone is Not the Answer

While Sales and Operations Planning (S&OP) software and demand planning systems build a better plan, the reality is that the plan can never be completely accurate given the certainty of daily changes that will occur inside the planning horizon.

More and more companies are operating in an environment where many of the assumptions taken into the planning process are proven wrong as soon as you complete that process. Today's demand driven supply chains, with their customer-focused, "pull-based" models, require tools for collaborative demand management and profitable demand response.

This customer-centric mindset acknowledges that manufacturers and brand owners can no longer effectively "plan" their customers' needs; rather they must focus on responding to them. This requires abandoning the historical silo mentality of forecasting and planning.

For years, companies have focused on planning solutions that remove people from the process in the hopes of running the business like clockwork. Given the level of volatility, human input and judgment is essential to figure out the right tradeoffs to make when the business doesn't run as planned, (e.g.. forecast change, product revision, late customer order, supply shortage...), which is now the rule, not the exception.

When You Can't Plan Your Customers, What Can You Do?

The industry-leading organizations mentioned above have all learned that what you can't plan, you must respond to. Market leading companies understand that developing a core competency in Response Management becomes a critical corporate capability and a defining competitive advantage in volatile environments.

Solving the Response Management problem in demand management organizations requires:

  • accurate and timely demand sensing to quickly understand demand shifts collaboration: both with customers to gain consensus on true demand, and with internal colleagues to develop and analyze resolution alternatives; and
  • decision support that drives profitable responses through shaping demand and allocating finished goods supply as appropriate

Demand management is a strategic priority for customer-focused companies, so it stands to reason that it requires a strategic solution to enable the process and empower the people responsible for it. Response Management solutions combine personal alerting, multi-enterprise visibility, collaborative "what-if" analysis and rapid decision support, so demand management staff can be empowered to deliver superior customer service and achieve revenue attainment.


Exception-based alerts to projected misalignments in demand and supply (e.g., forecast change beyond tolerance, late demand impacting quarter-end, supply disruptions, late customer orders, etc.) can enable demand managers and order fulfillment staff to quickly re-align supply and/or engage manufacturing operations as needed.

Multi-enterprise Visibility

Fully automated integration of demand and supply data from multiple sources including CRM, ERP, demand planning tools, supply chain management (SCM) tools, spreadsheets and point-of-sale data, provides a single integrated view of forecast, sales orders, inventory and supply. Automated capture, consolidation and roll-up of customer sales forecasts from disparate systems and sources across multiple distribution channels enables quick consensus for forecast development.

Collaborative Analysis and Decision Support

Quickly analyze the impact of daily demand and supply changes using "what-if" analysis to identify the best operational actions to drive effective response, ensuring S&OP business objectives are achieved. Simulate, share and review options with multiple stakeholders. Evaluate the impact of all decisions (prior to execution) against the achievement of defined performance targets. With tools for collaborative analysis and decision-making, demand management, sales and customer service staff can proactively and continually resolve demand and supply misalignments and ensure that the right inventory is in the right place at the right time.

Achieving excellence in responding to changing customer demands has become the number one challenge facing enterprises today and can represent the largest opportunity for companies to increase customer service, enhance margins and attain more predictable revenue across the entire value chain.

Randy Littleson is vice president, marketing for Kinaxis Inc which.delivers an on-demand Response Management service that enables customer-focused companies to achieve breakthroughs in operations performance and customer satisfaction by rapidly and more profitably responding to constant changes in demand, supply and product. Kinaxis RapidResponse combines personal alerting, multi-enterprise visibility, collaborative "what-if" analysis and rapid decision support to empower front-line supply chain staff with tools for risk tradeoff and response to daily changes inside the Sales and Operations Planning horizon.

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