Demand chain — The “new form” of supply chain?
By: Hoang Le Trung Kien
Tags: Supply Chain, Supply And Demand

Supply chain, which refers to a process associated with the flow and transformation of goods or services, from raw materials to finished goods or completed services for end-users, is now increasingly becoming a key consideration of many enterprises. Increasing more focus on supply chain strategy, in the context of highly competitive level and high random factors’ impacts, is a smart way that firms can strengthen their order winner.

In a traditional way, supply chain mostly starts with planning of demand and capacity, even in Toyota — the father of lean manufacturing, planning is still conducted for some components with longer lead times than customer lead times allow. It is obvious that we cannot eliminate push strategy completely from our plan. However, due to the increase in customers’ requirements, customer-centric is among the top priorities of enterprises when developing business strategy, which results in the creation of many new concepts such as lean supply chain, integrated supply chain, supply network, etc.

In addition, there will probably be a gradual shift from the supply chain to a new system — demand chain

The concept of demand chain is still in its early phases. Nonetheless, it has the potential for being a new trend in further future. In supply chain, even in engineer-to-order (ETO) or make-to-order (MTO) manufacturing environments, manufacturers still look at their capacities and forecast to make decisions on their production plans. In contrast, demand chain, which focuses on the customer and aligning inter-organizational processes, turns their view to customers’ perspective and looks at the value that customers really need. It requires turning the supply chain on its head, rather than looking at customers as a final destination, starts from the end customers and works backward to raw material suppliers based on trust and mutual interdependence to design the whole channel and fulfill customers’ needs. The challenge is to design customized delivery systems that do not only refer to physical delivery but also customer experience, from R&D, marketing channel to customer service. While collaborating with other functions to ensure time to market, supplier and customer creation and retention, demand chain management focuses on aligning and synchronizing key customer demand with the company’s capacity and its key suppliers. It differs demand chain management, which not only tries to improve efficiency and effectiveness in existing operations but also focuses on innovation and rethinking, new areas for development and possibilities (unexploited market, new demand, etc.), from supply chain management.

As mentioned above, although it is difficult to remove push strategy completely, this shift can help firms reduce lead times a lot and reduce inventory level for components to nearly zero most of the time (Just — in — time and zero inventory seem to be very hard to be achieved) by producing right things only whenever they are needed, driven by customer demand.

However, trade-off will be something taken to discuss a lot

“Should we change our current system?” is a big question that enterprises having to deal with, especially FMCG enterprises that almost rely on make-to-stock (MTS) environment for their production plan. It causes a lot of impacts not only on cost but also on management through this transformation. The idea to apply assemble-to-order (ATO) or even MTO environment for a functional product might seem far-fetched when you first hear it. Nevertheless, with the development of technology like blockchain, distribution management system (DMS), vendor managed inventory (VMI), collaborative planning, forecasting and replenishment (CPER), 3D printing machine and a changed mindset of customer relationship management and lean, instead of spending lot of time on complex processes of ordering, producing, shipping and tracking, enterprises can make their products on demand.

Once it becomes reality, it will make a huge effect to push industries far away from current normal norm of a supply chain. Gattorna (2010, p.XI) states that “Supply chain management never was a good term because it immediately conjured up in one’s mind the `supply’ side of the enterprise.” Demand chain is a more sustainable system in which we can save a lot of resources as well as the development of enterprises are based on customers. It is now closer to reality than many may think.

Reference:

1. APICS (2020), “CPIM Part 1 version 6.2”.

2. Samantha Radocchia (2018), “Blockchain will turn the supply chain into a demand chain. Here’s why”. Available from: https://medium.com/hackernoon/blockchain-will-turn-the-supply-chain-into-a-demand-chain-heres-why-c039f4649cd0

3. Samantha Radocchia (2019), “From supply chains to demands chains: The future is local”. Available from: https://medium.com/@SamRadOfficial/from-supply-chains-to-demand-chains-the-future-is-local-773b7394e38e

4. D Ericsson (2011), “Demand chain management — The evolution”, Orion, Volume 27 (1), pp. 45–81