Magazine Summer 2015 Research Highlight

Integrating Supply and Demand

At many companies, sales generation activities have become disconnected from the operational activities required to fulfill that demand — resulting in conflicting objectives and foregone business opportunities. Bringing the supply and demand sides of an enterprise together can represent a significant opportunity for efficiency and value creation.

Wendy L. Tate, Diane Mollenkopf, Theodore Stank and Andrea Lago da Silva Reading Time: 10 min 

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To compete in different strategic segments at the same time, companies need close coordination between the sales side of the company and supply chain operations.

Many companies compete in multiple product or customer categories, each of which requires a distinct supply chain capability. Such companies are challenged to develop capabilities in both cost leadership and product or service differentiation — a tall order, given that the ability to compete in different strategic segments at the same time requires precise coordination of the sales side of the company with supply chain operations. This is especially tricky given the fact that in many organizations, the two sides are completely disconnected, a perennial problem that management thinker Peter Drucker considered one of the “great divides” in management. The divide between demand and supply is a key reason that companies are so often trapped into selling excess products well below market rates or losing sales because an inventory shortage makes it impossible to fulfill demand.

As remarkable as it might seem in this age of big data and just-in-time delivery, our research suggests that the divide between demand and supply is as serious a problem today as it was in Drucker’s time. Despite all of our technological and managerial advances, most companies are still trying to play off of three different sheets of music — the financial plan, the marketing plan and the operations plan — with results that seldom end in three-part harmony. Our research suggests that most companies still do not know how to serve their most important customers in a way that maximizes the value to their customers and to themselves.

To understand more about how a few companies have managed to bridge this divide, we conducted interviews with managers and senior executives at eight different organizations who worked at different roles on either side of the gap between sales and production. We found that value requirements often vary significantly across customers or segments of choice, demanding cost efficiency in some cases and product and service differentiation in others. Unlike sales, which has learned to tailor its offerings to the customer, the operational side of the enterprise is often incapable of altering its service proposition.

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About the Authors

Wendy L. Tate and Diane Mollenkopf are both associate professors of supply chain management at the Haslam College of Business, University of Tennessee, Knoxville. Theodore Stank is a professor of logistics and supply chain management at the Haslam College of Business. Andrea Lago da Silva is an associate professor of industrial engineering at the Federal University of São Carlos in Brazil.

Acknowledgments

The authors are grateful for the financial support granted by FAPESP (São Paulo Research Foundation) through the processes n° 2011/06008-8 and n° 2014/02389-5.

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Comments (3)
Rabindranath Bhattacharya
Dr. Rabindranath Bhattacharya, Visiting Professor, Supply Chain/Operations Management

I had observed in the field while working in a multinational frequently that products made for one customer sent to another customer or models interchanged for the same customer or products not meant for this week shipped to customer by mistake. Nobody was ready to accept the mistake and take the responsibility. There is always a mismatch between supply and demand. I thank the author for bringing out this article in this context.

While running an organization one should remember that all customers are not alike. You ought not jump to meet the demand of everybody by sacrificing the profit of the supply chain. Your supply chain must be aligned to the customer service level of each customer and type of products as well (responsive/efficient). I feel the following steps are necessary to ensure that products of right quality are delivered at the right time at right place.

1. Categorize your customers as per their service levels (100% or 99% or 95% 0r 90%)
2. Categorize your products as per their contribution level 
3. Form a cross functional team comprising of members from marketing, production, supply chain, Planning to design the supply chain
4. Design  your supply chain  (in and out of the organization) taking into points 1 and 2
5. Implement and operate ( using analytical tools and unique process tools wherever necessary) the supply chain inclusive of returns management

Rules, work arrangements (mistake proofing, android lights, Heijunka, RFID/radio tags etc) and incentives may all need to be revised to keep everyone focused on the success of the collaboration where  each member would think about the success of the other member and utilise and that is where success lies. Use of information technology should be such that right information reaches the right person at the right time. For example, all efforts are to be also made to offer Innovative products where contribution of the existing products is negative or negligible to add value to the system. In fact, Knowledge grows when it is shared and professional must learn to practice that in practice. After all objective of any supply chain is to offer superior service to customers with efficient operation! 

I would like to draw the kind attention of the readers to the following site where an organization was able to achieve a mistake proof service (nearly 7 Sigma) chain for distribution of tiffin boxes to office goers at their respective offices only by dint of superior team work. Read...

http://my.sociopal.com/mindpowercon/post?id=_mumbai_dubbawallah_supply_chain_management_who_is_dabbawala_a_dabbawala_is_a_person__56397
Nik Zafri Abdul Majid
Not many decades ago, Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.

But when you really analyze it (I mean really...), you'll find that there is never an accurate equilibrium in the curves of supply and demand.

This is because, the scenario depends mostly on what type of products and services that you're selling. If you talk about controlled items, then you can easily relate to controlled raw materials. 

Now, here you can't use the conventional supply and demand as it won't work!

What the article has successfully highlighted is about Knowledge-Based Economy and total reduction of Productivity-Based Economy.

Now, quoting Peter Drucker Chapter 12 in his book The Age of Discontinuity - (which he has said this quite some time ago - the idea of "scientific management" developed by Taylor/Mashlup.

There is; on the other hand; productivity but it is recommended not to be mixed up together as the sole indicator for supply and demand. 

There is a lot of justifications needed (which require true factual knowledge and information) to be made even in the laymen term rather than depending merely on the curves.

Thus, the information age will be ready to go for the next wave, Rules, practices needed rewriting in an interconnected, globalized economy where knowledge resources such as trade secrets and expertise are as critical as other economic resources.

Nik Zafri Abdul Majid
Consultant/Trainer/Advisor
http://nikzafri.blogspot.com (Blog)
Ravilochan Rao
A very interesting article challenging to bridge the gap between supply and demand. The 5 stage approach towards developing the demand and supply integration is simple and achievable one with conscious effort.