Why Demand/Supply Integration Is the Key to World-Class Demand Forecasting
- The Idea Behind DSI
- How DSI Is Different from S&OP
- Signals that Demand and Supply Are Not Effectively Integrated
- The Ideal Picture of Demand Supply Integration
- DSI Across the Supply Chain
- Typical DSI Aberrations
- DSI Principles
- Critical Components of DSI
- Characteristics of Successful DSI Implementations
- DSI Summary
One of the companies that participated in the DSI/Forecasting Audit research was in the apparel industry. This company, a manufacturer and marketer of branded casual clothing, had very large retail customers that contributed a large percentage of overall revenue. Understandably, keeping these large retail customers in stock was very important to the success of this company. If these retailers’ orders could not be filled, then out-of-stock conditions would result, with not only lost sales as the consequence, but also potential financial penalties for failure to satisfy these retailers’ stringent fill-rate expectations.
As is the case for many companies in this industry, considerable manufacturing capacity had been offshored to sewing operations in Asia. This strategy helped to keep unit costs down, but it also had a negative impact on the company’s responsiveness and flexibility. At the time of our audit, the research team heard about a communication disconnect between the supply chain and the sales organizations at this company. A variety of problems had left the company with significant capacity shortages. Although these problems were solvable in the long run, in the short term, the company was having significant fill-rate problems with some of its largest, most important retail customers. Some of the most popular sizes and styles of clothing were in short supply, and customers were not happy. Supply chain personnel were working hard to address these problems, but in the short term, there was little to be done. Although these supply chain problems were impacting the company’s largest, most important customers, personnel from the field sales organization were being incentivized to open new channels of distribution and locate new customers to carry their brands. As one supply chain executive told this story, she said in exasperation, “We’re out of stock at Wal-Mart, and they’re signing up new customers! What the hell is going on here?”
This example is a classic illustration of what can happen when Demand/Supply Integration, or DSI, is not a part of the fabric of an organization. This chapter explores the essence of DSI, distinguishes it from Sales and Operations Planning (S&OP), articulates from a strategic perspective what DSI is designed to accomplish, describes some typical aberrations from the “ideal state” of practice, and describes some characteristics of successful DSI implementations.
The Idea Behind DSI
Demand/Supply Integration (DSI), when implemented effectively, is a single process to engage all functions in creating aligned, forward-looking plans and make decisions that will optimize resources and achieve a balanced set organizational goals. Several phrases in the preceding sentence deserve further elaboration. First, DSI is a single process. The idea is that DSI is a “super-process” containing a number of “subprocesses” that are highly coordinated to achieve an overall aligned business plan. These subprocesses include demand planning, inventory planning, supply planning, and financial planning. Second, it is a process that engages all functions. The primary functions that must be engaged for DSI to work effectively are sales, marketing, supply chain, finance, and senior leadership. Without active, committed engagement from each of the functional areas, the strategic goals behind DSI cannot be achieved. Third, it is designed to be a process that creates aligned, forward-looking plans and makes decisions. Unfortunately, when DSI is not implemented well, it often consists of “post-mortems,” or discussions of “why we didn’t make our numbers last month.” The ultimate goal of DSI is business planning—in other words, what steps will an organization take in the future to achieve its goals?
Our research has shown that three important elements must be in place for DSI to operate effectively: culture, process, and tools. An organization’s culture must be focused on transparency, collaboration, and commitment to organization-wide goals. Processes must be clearly articulated, documented, and followed to ensure that all planning steps are completed. Effective tools, normally thought of as information technology tools, are also needed to provide the right information at the right time to the right people.