Who Does DDSN Best?

Tuesday, March 28, 2006
Lora Cecere, Colin Masson

As companies attempt to develop and implement demand-driven supply network (DDSN) strategies, we are frequently asked who does it best and where they can go to learn from DDSN leaders. No one organization has all the answers. Instead, we find that all companies, even DDSN leaders, excel only in pockets of buy, make, move, or source processes.

Based on two years of attending conferences, completing reference calls, fielding inquiries, and going through intense client engagements, I now share information on where I have found leadership in the key processes of sales and operations planning (S&OP), demand management, inventory management, lean manufacturing, contract manufacturing, supply management, and aftermarket service.

Three groups are asking who does DDSN best:

DDSN leaders pushing for further excellence
Mature supply chain organizations making the shift to DDSN after many years of pushing for supply chain excellence
Organizations just beginning to understand the concepts that more mature supply chain organizations have mastered
Since 48% of companies have supply chain organizations with less than two years of experience and value chain excellence is rising in importance, this is a frequent question.

For perspective, let’s start with a definition of DDSN leadership. DDSN leaders are striving to become demand driven and build agile and responsive supply networks. Demand-driven strategies include investing in downstream data systems to better understand market insights, and to better sense and shape demand through a redefinition of demand management. It’s also maturing and changing the focus of S&OP and building a demand visibility signal (see the AMR Research Report “What Is Demand Visibility?” March 2006).

Other DDSN leaders are building agile and reliable supply networks. This is done through a series of supply-side initiatives aimed at rethinking global strategies, inventory policies and design for supply strategies, redefining manufacturing for improved responsiveness, and building supply networks to improve costs, performance, and time to market.

While the two go hand in hand, industries like automotive, chemicals, industrial equipment, and aerospace start with a supply-side focus, while retail, consumer products, and high-tech usually start with the a demand-side focus.

Sales and operations planning (S&OP)

For leadership in S&OP, turn to the chemical industry with close competition in the high-tech industries. While most will not let us share their names, chemical companies are pioneers in seizing market opportunity through the development of market SWAP plans, the use of product profitability analysis, and price management technologies.

We finished a year of comprehensive research on S&OP with the AMR Research Report “Handbook of Sales and Operations Planning Technologies,” March 2006. As we finish the first quarter of 2006, interest in this area remains high.

Use of downstream data

Companies that are the most advanced in the use of downstream data are direct store delivery (DSD) consumer goods companies, including Anheuser-Busch, Coke, and PepsiCo. Other notable leaders are Procter & Gamble and Seagate. (For more on the latter, see “Seagate: A Leader in the Use of Downstream Data.”)

While many companies are collecting downstream data, confusion reigns on how to use it. We often find that while downstream data can be used by five applications—marketing effectiveness, sales account management, category management, vendor-managed inventory (VMI), or corporate forecasting—most companies lack a comprehensive strategy. As a result, we are seeing increasing interest in building an infrastructure to collect, harmonize, and use downstream data in a more holistic strategy. Look for a series of articles on this in late spring.

Demand planning

For demand planning leadership, look to the media and home entertainment industries, including Disney Buena Vista: see the AMR Research Alert article “Disney’s Buena Vista Combines Advanced Retail Planning and VMI for Superior Results.” Other examples can be found in DSD consumer goods companies and in the apparel and footwear industry (see “Case Study on Forecasting New Product Introductions: Three Techniques To Consider”).

For these leaders, the frequency of demand forecasting is increasing, the modeling is becoming more complex, and the focus is shifting from unit forecasting for factory production to channel attribute forecasting to better sense and shape demand and forge market opportunity.

Inventory management

Hewlett-Packard and John Deere are good case studies here. In the most advanced organizations, shared-service organizational models are evolving in which specialized teams provide a service to line-of-business owners. These teams retain ownership of the models and closely tie the assumptions to the business strategies. We also see that the best results happen when they are connected to a part of a systemic process like S&OP or new product development and introduction (NPDI). We will be writing more in this area throughout 2006.

Lean manufacturing

We continue to be impressed with the work by Johnson Controls, Samsung, and Toyota. Leaning out supply chain processes—manufacturing, supply, and logistics—continues to be the focus of many DDSN leaders.

Management of contract manufacturing

In the discrete industries, Boeing and Herman Miller were voted the best by providers of contract manufacturing service in our March 2005 study of contract manufacturing. For process industries, look to leading pharmaceutical companies for best practices. These companies were early leaders in the building of successful contract manufacturing supply networks.

Supply management

Leadership here seems to be more a function of executive leadership than industry segmentation. For an understanding of the potential of sourcing and procurement technologies, study the progress of companies like Disney, IBM, Heinz, and GlaxoSmithKline. (For more on GSK, see the AMR Research Alert article “GlaxoSmithKline: Using Sourcing to Add Billions to the Bottom Line.”)

The greatest hurdle here is change management. As a result, we continue to see leaders invest in the training of their procurement organizations, rethinking organizational design based on commodity strategies, and building global strategies.

Service excellence

Many companies are just waking up to the opportunity in service supply chains. The first step is the realization that service supply chains are fundamentally different than the product supply chain. This change from a break/fix mentality to one of performance and availability is reshaping many of these initiatives. For service excellence, study the practices of service leaders like Boeing, Caterpillar, and Cisco.

Let me give you a personal invitation to our Supply Chain Executive Conference, May 31 to June 2 in Scottsdale, Arizona. The keynote speaker: former president Bill Clinton. Companies seeking improvements should actively network with leaders in the areas above, and our conference is a great place to start.

© Copyright 2006 by AMR Research, Inc.