Explaining the demand driven supply chain
Monday, February 6, 2012 at 5:04PM The demand driven supply chain is a retail optimization model developed and made popular by AMR Research. AMR defines DDSN as a system of technologies and processes that sense and react to real-time demand across a network of customers, suppliers, and employees. AMR benchmark research shows that those who do not implement supply chain improvement have an overall cost disadvantage of 5% of revenue due primarily to poor forecasting and in-stock performance. (see AMR Research Report "Hierarchy of Supply Chain Metrics: Diagnosing Your Supply Chain Health,: Feb 2004).
An article by author Enrique De Argaez summarized the main advantages of DDSN as: participants in the supply chain are all able to take part in shaping demand, as opposed to merely accepting and reacting to it. Where vendors traditionally had little or at least latent visibility into market demand, the collaborative technologies employed in implementing DDSN have the overall effect of reducing and even eliminating the gap between upstream business and the end customers. This gives more accurate and timely insight into market trends which increases the accuracy of forecasting and supports better in-stock performance.
This type of market intelligence impacts more than just a vendor's ability to plan operations; it translates directly into reduced inventory holdings across the supply chain, which in turn, means an overall reduction in the amount of capital invested and therein all the associated carrying costs.
Research shows that companies who are best in class as demand forecasting average 15% less inventory, 17% stronger perfect order performance and 35% shorter cash-to-cash cycle times.
As a vendor, a first step in becoming demand driven is to gather and analyze retail POS data. Without the proper tools, this can be a time intensive process. But with the right tools, a vendor can accept multiple retail POS data feeds from their retail customers and begin to understand item sales and inventory on a store by store basis.