Demand-Driven Supply Chain

Demand-Driven Supply Chain

At P&G, we decided to stop being so company-centric, and start being cus-tomer-centric and demand-driven. We found when you do that, some amazing things happen (Ralph Drayer, former Chief Logistics Officer at P&G).

Introduction

In a traditional supply chain producers and manufacturers were forecast-based and sales-driven and the products were pushed downstream towards end customers. In other words, products were 'driven' to markets (de Argaez, 2011).

The concept of the demand-driven supply network (DDSN) was introduced in 2003 by AMR Research (Barrett, 2007). Contrary to the transitional approach, DDSN is driven from the 'front' by customer demand. Instead of being 'driven' to markets, products are 'pulled' to market by customers. This does not apply that DDSN removes or limits the abilities of a company, but merely defines that companies in a supply chain work more closely to shape market demand by sharing and collaborating information. By doing so, they achieve greater and more timely visibility into demand (de Argaez, 2011).

The uniqueness of the DDSN model is that it is capable of incorporating a range of organisa-tional processes and functions, including demand management (marketing, sales, service), supply management (manufacturing, logistics, sourcing) and product management (R&D, engi-neering, product development) (Barrett, 2007).

When planning a demand-driven supply and to achieve the capabilities it can offer, a company should consider the following: agility as the ability to respond quickly to short-term change in the demand and supply equation and manage external disruptions more effectively, adaptabil-ity as the ability to adjust the design of the supply chain to meet structural shifts in markets and modify supply network strategies, products, and technologies and alignment as the ability to create shared incentives that aligns the interests of businesses across the supply chain (Hau Lee, 2004). Achieving agility, adaptability and alignment can lead to collaboration and eventu-ally balance between market demand and production. Overall, DDSN allows to balance a 'pull' from customers with an equal and opposite 'push' from supply chain members (de Argaez, 2011).

Definition

Demand-driven supply chain, also known as demand-driven supply network (DDSN), is a sys-tem of technologies and processes that sense and react to real-time demand across a network of customers, suppliers and employees (Doherty, 2005).