Why You Need to Adopt a Service-Driven Supply Chain Strategy
Introduction
An Evolution in Supply Chain Thinking
Over the past 20 years we’ve seen a progression in how we view the supply chain. We moved from a focus on supply—what and how much to supply or replenish—to the demand-driven supply chain, which maintained that supply chains need to take an outside-in view triggered by the demand signal. While demand-driven thinking was certainly a step in the right direction, it placed too much emphasis on the intermediate result of a demand forecast and not enough on the supply chain’s true end goal: providing service to your customers.
It’s time for the next evolution in supply chain planning, and it’s all about the service-driven supply chain.
Update Your Forecast All You Like, But it Will Never be 100% Accurate
Why Supply Chains are Crying Out for a Service-Driven Focus
In a market of growing demand volatility and higher service expectations, too many companies get locked into traditional processes and a familiar increasing number of SKU combinations, they load up on inventory to accommodate long-tail, erratic demand. This invariably leads to problems like extra freight costs and excess and obsolete inventory that either needs to be written off or sold at a heavy discount. Planners are continuously in reactive and inefficient “firefighting” mode, spending most of their time changing suggested replenishments and manipulating service levels instead of driving performance.
Long-Tail Demand Complexity Is Keeping Supply Chain Planners Up at Night
Items with intermittent, unpredictable or “long tail” demand are a growing part of business, which is making demand forecasting and inventory management a headache.
/What’s Causing the Long Tails?
- Product proliferation – more products and variants mean splitting demand and inducing higher variability at the individual SKU level.
- More frequent replenishment – faster delivery and reactions to demand changes require shorter replenishment time buckets which trigger many more periods of zero demand, interspersed with lumpy demand spikes.
- Extended supply chains – increased collaboration between vendors, distributors and retailers provides downstream demand visibility closer to the end customer. Demand is disaggregated into smaller streams where intermittent behavior becomes common.