The global economy has grown increasingly connected as manufacturers produce more in shorter time frames and technology advances allow for instantaneous access to information. According to experts, these changes in the way goods are produced and data is shared has set the stage for new demand-driven technologies.
How does a manufacturer make the transformation from a traditional forecast-based planning model to a more nimble, and likely more profitable, demand-driven process? It takes careful consideration, a healthy look inward, and the ability to harness technology to its fullest without over-relying on its power, industry analysts say.
Why demand-driven technologies?
A demand-driven manufacturing company can sense and adapt to changes in customer requirements, and then pull from suppliers, all in real time, said Lora Cecere, Founder and CEO at Supply Chain Insights in Baltimore, Md.
Good news tends to travel fast and bad news travels slowly, according to Cecere, causing unreliable forecasting data. The ability for a demand-driven manufacturer to see true demand patterns within hours or days rather than weeks or months is invaluable, she said.
Invaluable though it may be, the journey to demand-driven technologies isn't always easy and there is no one-size-fits-all approach to getting there, but it helps to understand the process by dividing it into five stages of maturity, said Simon Jacobson of Stamford, Conn.-based Gartner.
"In the early stages of maturity, where you have autonomous manufacturing sites, where the goal is to maintain effective local site-level control, manufacturers could only react to frequent production changes," Jacobson said.
As a manufacturer matures and begins to achieve a level of efficiency by function, the organization can begin to integrate these functions across sites. "Quality, maintenance and safety all work together with the enterprise for a level of consistency and reliability across the manufacturing network," he said.
But all of these developments remain focused on the internal manufacturing process and fail to tap into the potential of full-tilt supply chain collaboration, Jacobson added. This is where demand-driven technologies come into play.
At this stage, companies start working with customers and suppliers throughout the supply chain to build inter-enterprise processes, such as collaborative forecasting and inventory management, according to the Gartner report, Introducing the Five-Stage Demand-Driven Maturity Model for Supply Chain Leaders.
"If I'm using a contract manufacturer, for example, and have visibility into a production line, I can see yield status, line performance, cycle counts and other information," Jacobson said. "That way, I can proactively work with them to improve quality levels or just improve their process capabilities."
Technology has allowed for "ubiquitous information access," he added. "Oftentimes, companies fall into the trap of seeing technology as the panacea for maturing their capabilities."
Do your homework on demand-driven technologies
This is, in part, is why moving toward a demand-driven model involves careful consideration, according to Cecere. "There's a lot of bait and switch from consultants," she said. "They'll implement old ERP technology that ends up being demand-insular instead of demand-driven."
"You need ERP, but that alone does not get you to demand-driven," Cecere added. "But there is no one answer. People have to stitch it together."
Demand-sensing technology from companies such as RSI, Terra Technology and ToolsGroup can synthesize channel demand to give a more accurate signal for replenishment and fulfillment and can augment a company's existing ERP systems. Larger systems of record, including JDA, Oracle and SAP, also offer modules that can add demand-sensing applications such as point-of-sale data to their traditional functions.
"It's important to do your homework on this," advised Bob Ferrari, founder and managing director of the Ferrari Consulting and Research Group.
"What we find is that technology vendors cater to specific industries because of their nuances," Ferrari said. There are best-of-breed technology vendors that cater to the chemical business, food and beverage, or pharmaceuticals because of the nuances of their manufacturing processes, he added.
But technology alone will not get you to a demand-driven model. "A lot of manufacturers try to get at this by technology alone. That's an important part of it, but the notion of process and practice is very important when we talk about best practices," Ferrari said.
Know yourself and your customers
Manufacturers have to understand who their customer base is, how they respond and what kind of flexibility they want. Knowing these characteristics about its customers will allow a manufacturer to be both cost-efficient and demand-driven, according to Ferrari.
A hybrid demand-driven model might work the best for some manufacturers. "There may be a grouping of your most profitable customers that you segment for demand-driven manufacturing because those are the ones that mean the most to your business," Ferrari said.
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It's also important that the plant's processes are set up in a way that facilitates the transition to demand-driven.
"A lot of companies that are successful with the transition spend time to invest in design-for-manufacturing processes," Ferrari said. Design-for-manufacturing can reveal to a manufacturer where components can be shared across varieties of products. "When you're responding to customer demand, you're not chasing so many variations. You've got some commonality among these different products," he said.
The biggest challenge on the way to demand-driven, Ferrari added, may be an organizational one. "It's about getting all the participants together in the process -- sales, marketing, supply chain, manufacturing and finance -- to understand what is meant by demand-driven manufacturing and how it will benefit the whole enterprise," he said.
The company first has to be convinced that becoming demand-driven is the only way to support long-term growth and profitability, according to Gartner's demand-driven maturity model report. Next, they'll want to know what success looks like. As the report says, "With the organization's buy-in and support, the next challenge will be to clarify the 'how': How can the company progress from one stage to the next?"
Jacobson has one warning for manufacturers exploring demand-driven technologies: "If you're taking a one-size-fits-all approach to becoming demand-driven, you're going to set the wrong pace," he said. "You've got to understand: Varying business models, production styles, market segments and even product mixes are going to require very different approaches."
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This was first published in August 2013