Demand Driven Supply Chain Finance Essay

In the past years of 21st century, companies worldwide are trying to shift their focus from being linear to demand driven, in the supply chains. The driving motivation behind is cost effectiveness, responsiveness, develop an edge among their competitors & deliver the best value to customers. Where did it all begun?

Numerous operational techniques have been evolved over the years. Poka-Yoke, Kanban, Lean Manufacturing, Kaizen, Just in Time & Six Sigma have been some of them that we often hear about. While all these tool & techniques are used to improve production efficiency, the production had been largely shaped on the push model. Producers and manufacturers have been driving products to the market and the products were pushed downstream at the customers end. The linearity of the predominant supply chain is very clear from this.

The question arises "Who is a better decision maker of what and how much is required?" At this point in time the customer demand was added to the decision making process however the linear model gave birth to a very famous phenomenon that came to be known as the bull-whip effect. The end-to-end visibility lacks in the linear chain which up scales the swings in inventory as a response to changes in demand. Some qualifying and some quantifying Causes are available.

Now, companies are very clear that solely improving the efficiency would not suffice. Also a linear model to respond to demand has limited use, especially when the supply chains are converting in supply webs. Demand sensing & shaping is required to uphold and sustain a spirited advantage above the rest.

Turning to technology for a solution, IT strategies are adopted for Smarter Supply Chain of the future. Using ERP solutions, the retailing giants as well as other product and service suppliers are sensing the demand and stratifying the inventories/services available. Instead of having safety stock, psychic stocks are maintained. The aim of the push-pull stratification is to optimize the lead time among the different inventories according to demand variation. The demand-driven supply chain classifies inventories based on push-pull strategies, identifies real time sensing of demand and adds demand certainty to supply chain planning.

Transforming Supply Chains to be Demand Driven looks clear and sounds easy while we know no transformation comes without challenges. Available literatures on the same shows that major challenges faced by companies globally have more or less been identified. It gives a larger yet abstract picture of the reality as we know things change substantially with demographics.

Problem Statement

The particular parameter this paper tries to measure is the visibility. Therefore the statement of the problem is:

"Visibility barriers to demand driven supply chain in Indian context"

Purpose of the Study

This research, therefore, is an attempt to identify challenges in being demand driven for Indian companies funneling through their suppliers, manufacturers, distributors, resellers and other business partners who form an essential part of the their supply chain. The main focus will be on measuring visibility since it comes out to be the top rated challenge globally and also as visibility is the foremost concern for being demand driven in any industry.

Significance of the Study

This study is significant in determining the gap between Indian & global scenario. On one hand literature review shows the results for global suppliers, distributors, manufacturers & resellers and participants of the supply chain, whereas on the other hand this research will map it to the Indian context.

C. K. Prahalad in his book "The new age of Innovation" mentions that the transformation of businesses are based on two pillars

The focus being on the individual customer experience. i.e. Behaving uniquely with every customer and not considering them as masses, N=1 (N representing each unique customer)

Using global resources in achieving this transformation, R=G (Resources=Global)

This research will also help in determining the extent up to which Indian companies have been able to achieve or are on the path of achieving this transformation. We can say so because the gap between the visibility issues, barriers and other transformation challenges will define the set of parameters that have the driving force for the same in reality.

Literature Review

The review of literature is based on the findings of different institutions and companies that have been involved in the process of demand driven supply chain and contributing to the field of operations.

The concept of DDSN (Demand Driven Supply Chain) was first cited in the year 2004 by AMR research. It lists companies that top the list in terms of supply chain. Winners include Dell, Nokia, P&G, IBM, Wal-Mart Stores, Toyota etcA‚A These companies have found to be a forerunner in the context of being demand driven in their supply chains/network/web.

Process by which components are moved and produced from raw material to the ultimate consumer is called the supply chain. It focuses on

• Cost
• Time
• Transportation
• Packaging andA‚A
• other factors which differ from industry to industry.

So what exactly is a demand driven supply network or a chain?

Demand-driven supply networks are driven from the front by customer demand. Instead products being pushed to market, they are pulled to market by customers. It does not eliminate the ability of a company to push product to market but adds that companies in a supply chain would be working closely to shape market demand by sharing and collaborating information. In doing so, they will have greater and more timely visibility into demand. The aim of this collaboration is to better position everyone with the ability to more closely follow market demand and produce, in tandem, with what the market wants. Rather than replace the force of pushing, product to market, the DDSN strategy is to match a pull from customers with an equal and opposite push from supply chain members. Instead of leading the market from a push and artificially inducing unsustainable market demand, the concept behind DDSN is to react in tandem with demand. The methodology behind DDSN is to bring the supply chain eco-system into balance.

There are three consumer trends that have seen a revolutionizing change and decisively impacted consumer product and retail supply chains:

1. Consumer Diversification

Dramatic demographic and lifestyle changes, along with economic turmoil, has nullified the ability of traditional techniques to build consumer purchase databases, the irrelevance in the shopping trends compounded an explosion in the size of organized and unorganized goods has converted the well known trend of mass markets to "variable niche markets".

2. Consumer Polarization

A single customers buying trend will both tend to extremes of "new luxury goods" and "mass value" purchases. The "mid-level customer" is now extinct, and companies which provide mid-level quality at mid-level prices are at the forefront of this breakdown. The same customer who wouldn't pay for a Rs 50 espresso, would still pay Rs 50 lakhs for a top-of-the line sports car, just because it makes them feel good about themselves.

3. Mass Retailers

Wal-Mart and Tesco have successfully captured and consolidated the "mass value" segment of customers. Capturing the bottom of the pyramid has now realized into effortless revenue creation on negligible marketing costs but a resilient, efficient supply chain network.

The rest of the companies either capture the "luxury goods" segment or fail to capitalize on either, and face the losses while still trying to capture the "mid-level customer".

The primary solution to this problem or rather lack of control, is empower the right people who can respond rapidly and effectively in critical points, to ensure constant supply network changes don't cause "a bull-whip effect" and to de liver superior operations performance. To effectively manage the volatility in demand, organizations need to accept the demand-driven nature of supply chain networks and importance of DDSN (Demand Driven Supply Networks) - as a system and network of techniques and processes that realize and respond to real-time variations in demand across a network of customers, suppliers and organizational employees.

The outlined multi-dimensional trends realized in the industry, notice the shifts in supply chain management which defines that Supply Chains extend beyond the physical boundaries and reach of the core business processes and organizational environment. The "Outsourced competency model", which relates to the most efficient utilization of the organization's core competencies, root business processes and offloading the rest as much as possible. Hence the evolution of these organizations into "business eco-systems" consisting of tightly linked specialized trading and supplying partners. The competency and effectiveness of this interwoven supply-chain depends not only on the organization defining the core-process but all major and minor components that build up the supply chain.

Traditional humanized SCM techniques have no outlining advantage in the new environment; Organizations have mastered the methods to effectively manage the machines but often stutter at managing their supply chain relationships, specifically, for non-strategic and non-critical suppliers. Abnormalities in data handling and filtering amongst smaller vendors, along with quality checking for them are an undermined and unchecked area.

Figure : Smartmap to the supply chain of the future. The issue with the "business ecosystems" is that the human nature of risk is independent of all metaphysical processes. Key inbound and outbound processes such as purchases management, warranty fulfillment, customer risk management and order forecasts cannot be outsourced, as they would lead to loss of control and focus.C:UsersytulshyanDesktopibm-study2.jpg

   Having known what being demand driven is and the driving forces behind it, let us take a look at what information do we already have in the area of our research; before we present our own inferences.

As also explained in the figure above the three new characteristics for smart supply chain of the future are:

• Instrumented (machine generated)
• Interconnected (extensive connectivity-worldwide network)
• Intelligent (advanced analytics and modeling)

While the top 5 supply chain challenges identified globally are

Cost containment

• Visibility
• Risk
• Customer Intimacy
• Globalization
• SC Challenges.PNG
• Figure Global Supply Chain transformation barriers

Among these challenges visibility is rated as the top most challenge in the process of transformation.

At a time when, generally speaking, information is abundant and connectivity is more feasible than ever, supply chain executives still rank visibility as their greatest management challenge. Although more information is available, proportionally less is being effectively captured, managed, analyzed and made available to people who need it.

Visibility - and the collaboration required to get information and make decisions with it - is not attracting much attention in terms of activities and programs. Supply chain executives are focused more on strategy alignment, continuous process improvement and cost reduction. Driving integration and visibility of information inside their organizations & external visibility are some of the parameters on the list that we will try to evaluate here in our survey.

Other barriers are not less however this gives a very important illustration on why visibility barriers should be measured. The reviews show it is the top challenge but not the priority.

Why is it not the priority? The question remains unanswered

How do you measure visibility? What are the quantitative or qualitative parameters?

Some questions need more understand and deeper thoughts while some we try to answer.

Methodology

For any research to be successful the most important part is the basic research plan and the data sources that will be used for analysis of the report. The purpose of the surveys and all the data's is to collect the primary data, which is the data, collected and assembled specifically for the research project in hand.

The purpose of the research here is to measure visibility barriers to demand driven supply chain in Indian context. The basic question highlighted is: Which parameters affect the visibility of a supply chain?

Population and Sampling

It includes the use of a survey where sampling becomes a major issue. The value of survey research findings depends heavily on the quality of the research sample. When you wish to measure attitudes from a large population, sampling is called for because it is too expensive to collect input from all members of the population. But the sample must accurately represent the population, or else the research findings are of questionable value.

The population for the entire survey is executives or people who are a part of the supply chain, as a distributer, manufacturer, warehouse, logistics etc...The majority of the people are from the Chemical/Pharma industry due to high population of chemical & pharmaceutical plants in the area where the survey was conducted. So we can say the results obtained from this research will be inclined to these demographics.

The reason for such a selection is because this will be the sample, which will mostly be involved in the process of supply chain transformation or are affected by translucent nature of the chains. So they would precisely be able to understand the purpose of the survey and thus answer it appropriately.

Validity

The purpose for any measurement is to measure what is it actually solving the purpose of the research. Hence we need to validate the data via validity test that checks that the scale logically appears to accurately measure what it is intended to measure. In the survey there is no major use of scales but the options that have been kept are according to the literature. This means that the options kept are the most probable answers that the respondents will give. Hence the content is valid enough.

Analysis of the survey data

The survey conducted is in Appendix 1 of the document.

The majority of the respondents are from three industries: Pharmaceutical, Chemical & Automotive. Around 103 executive were surveyed. To keep calculations simple we are considering a sample o 100.

Table : Industry you working in  ERP Implemented in Organization

Industry working in

ERP Implemented in Organization

The percentage of ERP implemented in the organizations is very high. The companies with no ERP are from the SME segment who are wither under the process of implementing or are about to begin.

Inference: ERP implementation is on its way. For SMEs is still under WIP but not a complete question mark.

Table : ERP Implemented in Organization * Rate the Challenges faced in Supply Chain

ERP Implemented in Organization

Rate the Challenges faced in Supply Chain

Total

Visibility

Cost Containment

Risk

Customer Intimacy

Supplier Intimacy

Yes

No

9Interestingly even for the companies that have implemented ERP, 38 out of 83 rate visibilities the top most challenge i.e. approximately 46%.

Inference: Even after ERP implementation the visibility is not transparent in the organization inside and outside.

Table : ERP Implemented in Organization * Technological tools do not effectively support

ERP Implemented in Organization

Technological tools do not effectively support

Total

Very Significant

Substantially Significant

Significant

Yes

No

37% of the people working with ERP rate ineffectiveness of technology very significant.

Inference: Information availability might not be the issue. Proper analytical tools for, inferring data and using it properly is important.

Figure : Significance of the reward for collaboration

Figure : Organization silo collaborationThe tables below determine the frequencies of how significant were the parameters rated by the supply chain executives.

Figure : Technology tools ineffectiveness, Significance

Figure : Individuals to busy to assist others, Significance.

Table : Real-time information transparency inside and outside the enterprise?

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Widely Accepted

Somewhat Accepted

Figure : Information transparency inside & outside the organization

The real time information sharing inside and outside the organization is not very widely accepted.

Table : ERP Implemented in Organization * Real-time information transparency inside and outside the enterprise?

ERP Implemented in Organization

Real-time information transparency inside and outside the enterprise?

Total

Widely Accepted

Somewhat Accepted

Yes

No

The figures in the table above clearly show that even for companies that have implemented ERP, real time information sharing is not accepted to the extent it should have been.

Table : Planning with suppliers

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Extensively

"Somewhat"

Figure : Planning with suppliers

Majority of the people do not plan with their suppliers. Even if the information is available to them form technological or electronic sharing, concrete planning with the suppliers is missing.

Table : Real time electronic data sharing

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Extensively

"Somewhat"

Table : Organization's Supply Chain Agility

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Yes

Table : Supply chain Agility to be critical for organizations's business

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Yes

No

Total

100

100.0

100.0

Figure : SCM Agility

Table : ERP Implemented in Organization * Organization supply chain agile?

Is your org's supply chain agile?

Total

Yes

No

ERP Implemented in Organization

Yes

14

69

83

No

3

14

17

Total

17

83

100

Conclusions

The question we started with was:

"How do you measure visibility? What are the quantitative or qualitative parameters?"

The parameters and rated significance gives a clearer, yet not very transparent, picture of the Indian Scenario.

By the results of the survey it is hence concluded that majority of the organizations have technological capabilities that enable them to share data in real time. Most of them have ERP, RFID implemented. Visibility once again is rated very high as compared to other barriers of transformation. However there is some gap between the global and the national statistics. This can be measured more properly with improved research samples and demographics.

Organization silos, reward for collaboration and effectiveness of technological capabilities is something that needs to be looked forward to. The major problem that has been reported is not the absence of technology or the knowledge of it, but the use of it in proper and judicious manner. Simple implementing technology and not leveraging it does not make much sense. It will on the contrary add to the cost and not be giving desired benefits.

It was not a surprise to learn to learn that organizations are too busy to share information. The global scenario is not very different. A very striking similarity is noticed. The gap that remains between the top global companies and others, shows similar trend when measure between big organizations and other companies operating with 200 - 500 employee base. These organizations have a low scale operation comparatively however the number of these organizations actually form the backbone of Indian manufacturing scenario. The number of organization with such capabilities are plenty in every Industrial Development Centres throughout the country and hence cannot be ignored

The information needs to be shared both inside & outside the organization. Comprehensive planning with the suppliers as well as customers is required. No matter how much information is shared, the analytics need to be defined. It has been a common review by the executives that they either do not have information being shared, or have so much information that they are not able to judge what to do with it.

Further research includes a more diversified sample to have a broader picture; however concentration should also be on small scale operations companies. Infrastructural barriers, resource capability and capital constraints are some important areas yet to be factored and mapped in this context. The future scope hence aims to include them.

Appendix

Survey

Name : 

Organization : 

Industry : 

Which area of supply chain do you form a part of?

Supplier

Manufacturer

Distributer

Retailer

Rate the following in the order of which you think is the topmost challenge in making your supply chain demand driven. (Rate 1 to 5, 1 being highest)

Visibility :

Cost Containment :

Risk :

Customer Intimacy :

Supplier Intimacy :

Has ERP been implemented in your organization?

Yes

No

Has RFID been implemented in your organization?

Yes

No

Kindly give your views regarding the significance of the following parameters as a barrier to Supply Chain Visibility

Organization silos inhibiting collaboration

Very Significant

Substantially Significant

Significant

People are too busy to assist others

Very Significant

Substantially Significant

Significant

People are not rewarded for collaboration

Very Significant

Substantially Significant

Significant

Technology tools are ineffective

Very Significant

Substantially Significant

Significant

Real time transparency inside and outside the organization is:

Widely accepted

Somewhat accepted

You share real time electronic data

Extensively

Somewhat

You do planning with your suppliers:

Extensively

Somewhat

Is your organizations supply chain agile enough to meet the fluctuations?

Yes

No

Do you consider supply chain agility to be critical for organizations business?

Yes

No

Any comments on how visibility should can be improved in your organizations supply chain 

Rated Parameters

Table : Organization silos inhibit Collaboration

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Very Significant

25

25.0

25.0

25.0

Substantially Significant

39

39.0

39.0

64.0

Significant

36

36.0

36.0

100.0

Total

100

100.0

100.0

Table : No Reward for Collaboration

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Very Significant

12

12.0

12.0

12.0

Substantially Significant

72

72.0

72.0

84.0

Significant

16

16.0

16.0

100.0

Total

100

100.0

100.0

Table : Individuals are too busy to assist others across the organizational supply chain

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Very Significant

32

32.0

32.0

32.0

Substantially Significant

61

61.0

61.0

93.0

Significant

7

7.0

7.0

100.0

Total

100

100.0

100.0

Table : Technological tools do not effectively support

Frequency

Percent

Valid Percent

Cumulative Percent

Valid

Very Significant

34

34.0

34.0

34.0

Substantially Significant

14

14.0

14.0

48.0

Significant

52

52.0

52.0

100.0

Total

100

100.0

100.0

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