Businesses that adopt the concept of demand-driven supply chain management (SCM) could significantly increase their performance, according to consultants Camelot.
Classic SCM relies on firms forecasting future customer demand to tell suppliers and factories what, when and how much stock to supply. However, the process can often be inaccurate, leading to the wrong quantities of goods sourced and imprecise stock levels.
Ankur Bhandari, head of consulting and business development at Camelot, said in contrast, demand-driven SCM software offers real-time information on demand and inventory levels to all supply chain participants, so they can react quickly to unexpected changes in demand, including geopolitical upheaval and consumer whim.
“A demand-driven system reacts independently to changes in customer demand and adapts stock level accordingly without any user intervention,” he said.
In their study, which examined three representative supply chains – a factory, a central warehouse and a set of distribution centres across the world – Camelot compared the classic supply chain planning approach of material requirements planning (MRP) with a demand-driven approach.
Using framework data from real company situations as a basis, the study found that while businesses using MRP could achieve service levels of more than 95%, the demand-driven approach could achieve service levels of 97%-99%, with material stock levels 23%-53% lower and lead times cut by 85%.
Josef Packowski, managing partner of Camelot, said given companies’ supply chain planning was basically very strong and optimised already, the results meant a “quantum leap” could be made in their business performance.
“The study and various experience in practice clearly show the immense potential of the demand-driven supply chain management approach for business performance,” he said.
“This is a clear signal to organisations to dedicate themselves to new approaches, since they are clearly the future.”