The last couple of weeks I read it several times. ‘Supply chains must be demand driven’, or ‘you have to be agile to survive in today’s global competitive environment’, ‘you’re agile or you’re dead!’. Some S&OP models suggest that being demand driven is the highest form of maturity. This seems mostly advocated by AMR Research and Gartner.
Before you think otherwise, let me tell you that I think that agile, responsive and demand driven supply chains come closest to what supply chain management in its purest form is about. As consultant, I worked for a meat manufacturer that received four times a day POS information from 600 stores from the largest retailer in the Netherlands. This gave direct insight in consumer buying behaviour. If the weather was better than predicted (the forecasting model took temperature in account), hamburgers and sausages would fly off the shelves to find their way to a barbeque. Based on the last POS data transfer the production schedule for the afternoon shift could be changed. The extra hamburgers and sausages produced in the late shift would find their way the next morning to the DC and stores of the retailer. This is a beautiful example of an agile, responsive and demand driven supply chain.
But being agile and demand driven are strategic choices that need to give you competitive advantage and have a pay back. For some supply chains these choices will be very different as they don’t get competitive advantage from being demand driven. Market dominance, product characteristics and go to market models don’t have a need to be demand driven or agile. I suggest to read up on David Simchi-Levi (http://slevi1.mit.edu/). He published a lot of great work on agility versus efficiency and demand driven versus supply driven.
Demand driven and agility are wonderful supply chain concepts. They are not holy grails and the preferred end status for every supply chain. Furthermore, we have to realize that (unfortunately) we live in a world that in many ways is about supply control. A large part of the world’s GDP is controlled by industries that don’t really care about demand.
Mining; Australian mining companies are investing 130 billion AU$ in supply exploration. China’s and India’s growth and demand for resources will continue. Don’t get fancy about being demand driven; just make sure you can dig the stuff up!
Oil: the Organization of the Petrol Exporting countries (OPEC) meets regularly to decide…basically how to control the supply of oil.
Banking: European banks do stall up to 800 billion Euro at the Central European bank. They don’t want to borrow it to other banks, because a lack of trust. There is demand for cash, but the banks decide not to make money but instead control the supply of cash.
Food & crops: a large part of the world food chain (fruit, meat, sugar, soy beans etc) is in the hands of a few companies. These companies play geo-political games rather than demand driven supply chain games.
Advocate whatever supply chain concept you believe in, but provide some context in what industry and supply chain situation your preferred solution will work, especially if you have an influential position.