In today's world of instant gratification, traditional planning practices can't keep up with the demands of customers. The problem is that traditional planning is based in classic forecasting formulas that cannot reliably predict the quantity of customer orders that need to be fulfilled. Because this type of forecasting is essentially a "best guess" approach, it does not result in true demand-driven manufacturing. Demand-driven manufacturing is based on actual orders, not forecasts.
The increase in customer demand also means more data moving through manufacturing organizations. So it is imperative that the transfer of information between suppliers, shippers, retailers, etc., is quick, efficient and accurate. For a company to thrive -- even survive -- in this fast-paced world, it needs to move to a more demand-driven manufacturing model.
In this guide, you will learn the benefits of demand-driven manufacturing, such as reduced production costs, improved accuracy and increased on-time delivery. You will also learn about some of the demand driven-manufacturing software available that can help your organization respond effectively to customer demand for a positive impact on the bottom line.
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Demand planning vs. demand-driven manufacturing
Demand planning is a supply chain management process for creating reliable, accurate forecasts. There are several steps involved in demand planning, such as creating and managing forecasts, customer collaboration, supply and demand collaboration and examining data to maintain or change planning as needed.
If a manufacturer is not in sync with actual demand, the result is something called the "bullwhip effect." Essentially, the bullwhip effect is a larger and larger swing in inventory in response to customer demand. The results can be undesirable; if demand falls, a manufacturer could be stuck with surplus inventory. If demand rises, it could be caught short and unable to supply customers with what they want. Therefore, the need for reliable, accurate forecasting is significant. Data needs to be up to date and the organization must be prepared to be flexible to meet changing demands.
The best safeguard is demand-driven manufacturing (DDM), which bases production on actual orders, not predictions. Becoming a demand-driven manufacturer is a major shift but worthwhile, according to experts.
Best practices for demand-driven manufacturing
Making the change to a demand-driven model calls for a fundamental change in the way organizations manage their supply chains. Carol Ptak of the Demand Driven Institute in Rochester, Wash., recommends a five-step approach.
Before finding out how much inventory you have or when to stock more, you should first ask where the inventory is located. Once you know where the inventory is, the second step is to determine how much inventory to place at that location. The third step is to adjust strategic inventory buffers according to the market, and the fourth is to adjust plans and planning processes to include any changes. The fifth step is to execute the new planning and production processes.
Ben Pivar, vice president of supply chain technologies practice at management consultancy Capgemini North America Applications Services, also favors a slower and methodical approach to such a large undertaking. "Manufacturers often try to take on too much at once. We are a big proponent of a 'crawl, walk, run' approach that allows companies to focus on tackling discrete areas but also [maintain] a vision toward a common goal," Pivar said.
Visibility and collaboration are also crucial to the success of demand-driven manufacturing. It is important to get everyone on board with demand-driven manufacturing, and that includes customers and partners outside the organization as well as employees. This means organizing functions between sales, marketing and the supply chain, for example, as well as improving insight into changes and patterns in the marketplace and reacting accordingly. It also requires tracking data and keeping communication open, which, in turn, requires suitable technology.
The amount of data moving through manufacturing organizations is enormous, and it has to be transferred efficiently to keep up with customer demand. Electronic data interchange (EDI) automates data transfers, reduces cost, improves cycle time and optimizes resources. When choosing EDI software, it's important to remember that EDI serves to connect data from multiple systems in a network -- it does not serve as analytical or pattern recognition software. The biggest challenge in integrating EDI software is getting it in sync with the organization's workflow.
There are several technologies to help an organization make the switch to a demand-driven manufacturing environment. According to Mickey North Rizza, a former manufacturing analyst for Gartner and AMR Research, now vice president of services for BravoSolution.com of Chicago, "There are tools for sourcing, new product introduction, demand signal repositories, inventory planning, demand management, warehouse management, logistics." Demand signaling from customers, for example, helps determine what and how much a manufacturer should make and what timeline is applicable.
Because each company is unique, adds North Rizza, it is up to each to analyze and decide what it will take to become demand driven, but there are plenty of strategies and technologies available to help them make the switch successfully.
Demand-driven manufacturing quiz
Think you know the finer points of demand driven manufacturing? Take this short quiz and find out.