08 February 2012

News : Sector Analysis

What's driving your supply chain?

Published:: 01 December 2008
Article Type:: News

Ever-changing patterns in customer demand, globalisation, multi-channel distribution, outsourced manufacturing, and increased competition all add to the complexity of supply chains, writes Jessica Davies.

Key industry players gathered at this year's Demand-Driven Supply Chains conference in London, to share ideas on how best to tackle these issues.

S&OP was the hot topic at the event, which was organised by The Awareness Group. Among the speakers was Roddy Martin, vice president and general manager of AMR Research, who called for a new way of thinking - advising companies to view their supply chains "from the outside-in", modelling them around what the customer wants. "First understand demand, then change the service to fit it," he said.

"Currently more than 50 per cent of companies take two weeks or longer to sense changes in actual demand," said Martin. This can be particularly problematic for products with shelf-life constraints.

If complexity in the supply chain is to be an opportunity rather than a threat, demand forecasting needs to be refined. Technology seems like the obvious vehicle to achieve this. However, Martin warned against, "throwing technology at the problem", saying it shouldn't be seen as a means to solve everything.

He stressed the importance of balancing the commercial and the operational sides of business. "S&OP is fast becoming a core competitive advantage... The leaders in supply chain deliver 20 per cent more perfect orders, hold a third less of the inventory, and have lower supply chain costs. These are the companies who have balanced upstream with downstream S&OP."

Daniel Oertli, head of corporate demand planning at Merck Serono, said "demand-driven supply chains are all about forecasting." He called for better internal collaboration within companies, saying, "at the corporate level, we don't know who our customers are. Sometimes we are too high up and everything looks hazy and far away."

Stephen Brew, head of supply and planning at pharmaceutical company Ineos Polyolefins, spoke of building a blueprint for a demand-driven forecast. He urged listeners not to use one metric to measure forecasting, saying, "metrics can force forecasts in the wrong direction."

He also pointed a finger at sales personnel for being partly responsible for false forecasts. "Beware of bad forecasting formed from the over-optimism of sales people, who are prone to bias. In a tight supply situation, a sales representative might forecast to ensure product availability to their own customer."

Alastair Charatan, former head of supply chain development for Woolworths, advised avoiding separate fulfilment centres as they add complexity and "can cost twice as much and end up eroding six per cent of your margin." He added that by integrating its DCs a company could potentially "cut out a day of lead time".

Adrian Murphy, managing director, supply chain for Nokia Siemens, reinforced this. He said the company removed all of its European warehousing, centralised its stock, and changed its S&OP process to implement short lead times. The result was that it reduced inventory by 50 per cent over three years.

Charatan gave voice to the benefits of local over global sourcing. Low-cost sourcing from Far East countries may seem cheaper, but "product quality can be compromised and lead times are too long." This is particularly problematic for the fashion industry, which thrives on short lead times. Soaring container rates are having a negative effect on shipping from the Far East. Using UK-based storage allows for less dwell-time in the DC, he said.

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