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Managing Software: Marketing & production get in-sync with the demand-driven supply chain

May 9, 2003
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A single, consistent, demand-based plan can react effectively to consumer demand and optimize marketing, production, inventory and replenishment decisions.



A BIG CUSTOMER SURPRISES THE PLANT WITH A promotion: the schedule goes to pieces, shipments suffer, costs go through the roof. The promotion produces lots of demand, but the product is not on the shelf – lost sales, unhappy retailers, unhappy consumers and unhappy stockholders. Does this sound familiar to you?

The problem is simple. If marketing and production were in-sync, the promotion would have enough product and the schedule would reflect true demand. Both organizations would be successful in performing their basic task. But history tells us it is not that easy.

However, a new concept in supply chain planning, called the demand-driven supply chain, helps get production and marketing in-sync. The concept of the demand-driven supply chain is the convergence of marketing and supply chain management. In the consumer products industries, including food, this is of key importance. Marketing drives demand through the use of promotional activities – advertising, deals, point of sale promotions, and the reaction to consumer demand through mass merchandisers. The supply chain must stay in-sync with marketing and marketing must stay in-sync with the supply chain for the generated demand to be fulfilled. The demand-driven supply chain requires a single, consistent, demand-based plan that can react effectively to consumer demand and optimize marketing, production, inventory and replenishment decisions. Will marketing always know in advance what the big customers are going to do with your product? The answer is clearly no. But by minimizing the gap between marketing and production and others inside the business, your ability to react is greatly increased.

Demand-driven supply chains strive to manage the convergence of marketing and supply chain management. It balances consumer demand, shelf life, production resources/constraints, trade promotions, and determining the demand for new product introductions.

The demand-driven supply chain focuses on the consumer’s or mass merchandiser’s actual behaviors, and manages demand flow upstream to the logistics providers, distributors and manufacturers. It uses forecasting, market research, business intelligence and planning to drive improvements through the demand chain. The objective is to align the mass merchandisers with marketing, with production and others inside and outside the food manufacturer’s enterprise.

Demand-driven supply chains address a company’s primary business concerns: customer satisfaction and retention, freeing up working capital by reducing inventories, increasing returns on trade promotions, bringing new products to the market faster than competitors, and achieving top-line growth by reducing stock out situations. The objectives of end-to-end supply chain visibility are better plans, better service, increased inventory turns, and higher profit margins. End-to-end supply chain visibility means marketing understands the realities of production and production understands the realties of marketing.

If your company is involved with significant promotional activities, deals with mass merchandisers, and often sub-optimizes production assets, you should consider the concept of the demand-driven supply chain. Integrated marketing, production, inventory and replenishment decisions clearly hold significant promise for these enterprises. Being in-sync means success for the company and satisfaction for consumers, retailers and stockholders.

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