Demand Driven Supply Chain

A Demand-driven supply network (DDSN) is one method of supply chain management which involves building supply chains that are responsive to varying demand signals. The main force of DDSN is that it is driven by customers demand. In comparison with the traditional push supply chain, DDSN uses the pull technique. It gives DDSN market opportunities to share more information and to collaborate with others in the supply chain.

DDSN uses a capability model that consists of four levels. The first level is Reacting, the second level is Anticipating, the third level is Collaborating and the last level is Orchestrating. The first two levels focus on the internal supply chain while the last two levels concentrate on external relations throughout the Extended Enterprise which is achieved by ERP applications extending through partners supply chains.

In Demand driven chain, customer activates flow by ordering from the retailer, who reorders from the wholesaler, who reorder from the manufacturer, who reorder raw materials from the suppliers. Orders flow backward, up the chain, in this structure.

The property of being demand-driven is one of degree: Being “0 percent” demand-driven means all production/inventory decisions are based on forecasts, and so, all products available for sale to the end user is there by virtue of a forecast. This could be the case of fashion goods, where the designer may not know how buyers will react to a new design, or the beverage industry, where products are produced based on a given forecast. A “100 percent” demand-driven is one in which the order is received before production begins. The commercial aircraft industry match to this description. In most cases, no production occurs until the order is received

Many companies are trying to shift from a build-to-forecast to a build-to-order discipline. Chase production planning strategy that includes meeting the demand at any given point of time is used over the level strategy where production happens at constant speed with full capacity. Chase strategy is boosted with subcontracting, Just in Time (JIT), KANBAN, Advanced Demand Planning and S&OP (Sales and Operations Planning) to increase the response time and satisfy the demand variations.

Key characteristics of Demand Driven Supply Chain are:

• Product movements driven by actual demand/consumption

• Real-time demand/supply visibility across partner tiers

• Inventory managed to dynamic target operating levels

• Early identification of demand/supply continuity issues before they impact production

• Single demand signal shared across partner tiers – one version of the truth

Demand driven supply chains align their planning, procurement, and replenishment processes to actual consumption and consumer demand. Becoming demand driven allows a company to be more responsive to consumer needs while increasing profitability.

Supply chains are becoming more complex as companies expand their geographic footprint, increasingly leverage outsourced manufacturing, and expand their channel partner network. Supply chain executives are looking for ways to obtain real-time, transparent visibility across all tiers in the supply chain so as to better align supply with actual demand to help reduce supply disruptions and capital expenses.

In order to evaluate whether our supply chain network is demand Driven, we must ask following questions:

• Do you have visibility to your total demand and supply picture at any point in time? Does this visibility extend beyond your first-tier partners?
• Are all material movements driven by actual demand or by forecast?
• How quickly can you identify and respond to a potential supply continuity issue?
•  Does your entire supply chain function as one virtual organization with everyone working with the same information, processes, and metrics?
• Does it take longer than a day for demand changes to propagate to your second-tier  suppliers? 

      Hence Demand driven supply chain prepares the organization for the new era of fluctuating demands and uncertain supplies by leveraging the benefits of advanced forecasting, S&OP, Trade planning, JIT, KANBAN, Partner Collaborations and Lean enterprise.