The demand chain is the set of processes and activities that a company uses to generate, track and fulfill customer demand. It starts with market intelligence and demand planning and extends through sales and order management to warehouse and distribution operations. An effective demand chain enables a company to anticipate customer needs and fulfill orders quickly and efficiently.
The term “demand chain” is sometimes used interchangeably with “supply chain.” However, the two terms refer to different things. The supply chain is the network of suppliers, manufacturers, warehouses, and distribution centers that a company uses to source materials and produce and deliver products. The demand chain is the set of processes and activities that a company uses to generate, track and fulfill customer demand.
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What is a demand chain?
Definition: A demand chain is that part of the value chain which is responsible for driving demand. The sales, marketing, and customer service departments of a firm’s value chain are referred to as the demand chain.
The demand chain along with the supply chain creates the value chain. While the demand chain focuses on driving consumer demand for a product or service, the supply chain revolves around manufacturing, shipping, and receiving the product or service.
The demand chain is the other half of the company’s products and services. It includes the decision makers who use or purchase the company’s products or services. The demand chain also includes the technology that the company uses to produce or deliver its products or services.
Meaning of a Demand Chain
The demand chain is an important part of a company’s overall operations because it is responsible for generating revenue. If the demand chain is not effective, a company will have difficulty generating sales and may eventually go out of business.
As it starts with market intelligence and demand planning, the process of Market intelligence helps a company understand consumer needs and preferences while demand planning involves creating a plan to meet customer demand.
The demand chain also includes sales and order management. Sales staff must be able to generate leads and close deals. Order management ensures that orders are fulfilled correctly and in a timely manner. The final part of the demand chain is warehouse and distribution operations. Goods must be stored properly and delivered to customers when they need them.
An effective demand chain enables a company to anticipate customer needs and fulfill orders quickly and efficiently. Let’s now understand how supply and demand chains create a value chain-
Concepts of Value Chain
The business economist Michael Porter of Harvard Business School introduced the concept of a value chain in his 1985 book Competitive Advantage: Creating and Sustaining Superior Performance.
Porter’s value chain is a model that disaggregates a firm into its strategically relevant activities in order to analyze each activity’s role in creating and delivering a firm’s primary competitiveness. The goal of the value chain is to create more value for the firm than competitors by performing activities differently or more efficiently.
The two components of the value chain are
Supply Chain
The supply chain is the network of suppliers, manufacturers, warehouses, and distribution centers that a company uses to source materials and produce and deliver products.
Demand Chain
The demand chain is the set of processes and activities that a company uses to generate, track and fulfill customer demand.
Challenges in making Demand Chains Faster & Better
1. Linking Supply Chains to Demand
Linking supply chains to demand has always been a challenge for organizations. The main reason behind this is the different processes and data types involved in each chain.
Many supply chain experts have been preoccupied with resolving the problem of linking demand and supply in recent years, and concepts such as “demand-driven supply chains” (Demand Driven MRP) have generated interest and have become a subject of many discussions on different forums. A “demand-driven” supply chain’s most basic feature is that material transfers (or replenishment execution) are influenced by demand. As a result, “make to order,” or “assemble to order” parts of the supply chain are classified as being “demand-driven.”
In a “make to stock” system, individual echelon replenishment quantities can be determined by the need to simply replace stock that has been consumed by the immediate downstream activity that also makes it demand-driven.
In contrast, “forecast push” supply chains calculate the customer-facing echelon replenishment quantity with the help of a forecast of future demands as well as a minimum stock balance or safety stock while the upstream operations are linked directly to the forecast through MRP calculations. As a result, “make to stock” replenishment quantities are independent of actual customer demand, and the system is referred to as “forecast driven.”
2. Demand Chain Information Systems
Demand chain information systems (DCIS) are a set of software applications that support the planning, execution, and monitoring of demand chains. A DCIS typically includes a Demand Planning module that forecasts customer demand and translates it into production plans.
The Production Planning module creates production schedules based on the demand forecast, while the Inventory Management module tracks inventory levels and manages stock replenishment.
The Transportation Management module plans and executes the transportation of goods between locations, and the Warehouse Management module manages the storage and retrieval of goods in warehouses.
3. Demand Chain Process Re-Engineering
Demand chain process re-engineering (DCPRE) is a systematic approach to improving the efficiency and effectiveness of demand chains. It involves the redesign of processes, organizational structures, and information systems to achieve significant improvements in performance.
DCPRE projects typically focus on one or more of the following objectives:
- Improving customer service levels
- Reducing inventories
- Reducing lead times
- Improving the accuracy of demand forecasts
4. Demand Chain Resource Distribution and Optimisation
Demand chain resource distribution and optimization (DCRDO) is a systematic approach to improving the efficiency and effectiveness of demand chains by optimizing the distribution of resources across the chain. It involves the redesign of processes, organizational structures, and information systems to achieve significant improvements in performance.
Budget segmentation along with targeting and optimization techniques are used to ensure that the right level of resources is allocated to each part of the chain. This results in a more efficient and effective demand chain that is better able to meet customer needs.
Demand chain budgets for each stage of the chain are typically allocated as a percentage of the total customer demand. The distribution of resources across the chain is then optimized to ensure that the most efficient and effective use is made of the available budget. Segmentation and targeting techniques are used to identify the most appropriate budget for each stage of the chain. Optimization techniques are then used to determine how best to distribute the available resources across the different stages of the chain.
Demand Chain Management
Demand chain management (DCM) is the process of managing the flow of goods and services from suppliers to customers. It includes the coordination and integration of all activities involved in the planning, procurement, production, and delivery of goods and services.
DCM includes both operational and strategic elements. The operational elements involve the day-to-day management of demand chains, while the strategic elements involve long-term planning and decision-making. DCM is a key part of supply chain management (SCM) and is often used interchangeably with SCM.
A Demand Chain Management System
A demand chain management system (DCMS) is a software application that supports the planning, execution, and monitoring of demand chains. A DCMS typically includes a Demand Planning module that forecasts customer demand and translates it into production plans.
The Production Planning module creates production schedules based on the demand forecast, while the Inventory Management module tracks inventory levels and manages stock replenishment.
The Transportation Management module plans and executes the transportation of goods between locations, and the Warehouse Management module manages the storage and retrieval of goods in warehouses.
A DCMS may also include modules for order management, supplier management, customer relationship management, and analytics.
Demand Chain S&OP
The Demand Chain S&OP (Sales & Operations Planning) process is a decision-making process that coordinates all aspects of an organization’s Demand Chain with its strategic goals. S&OP provides a framework for integrating Demand Chain planning with other business planning processes, such as financial planning and product development.
S&OP balances supply and demand by aligning them with an organization’s strategic objectives. It takes into account both internal factors, such as production capacity and inventory levels, and external factors, such as customer demand and market trends.
The Demand Chain S&OP process typically includes the following steps
- Demand forecasting:
- Demand planning
- Capacity planning
- Inventory planning
- Production planning
- Transportation planning
- Distribution planning
The Demand Chain S&OP process is a key part of Demand Chain Management (DCM) and is often used interchangeably with DCM.
Lean Six Sigma in Demand Chain Management
Lean Six Sigma is a methodology that combines the best practices of Lean and Six Sigma to improve quality and efficiency in Demand Chain Management (DCM).
Lean Six Sigma is a data-driven approach that seeks to eliminate waste and variation in all aspects of the Demand Chain. It is a structured methodology that is built around the following five steps
- Define
- Measure
- Analyze
- Improve
- Control
The Lean Six Sigma methodology can be used to improve all aspects of the Demand Chain, from Demand Planning to Transportation Management. It is a valuable tool for reducing costs and improving quality in DCM.
Operational effectiveness in the demand chain is essential to meet customer expectations in terms of quality, delivery, and price. Achieving operational excellence requires the coordinated management of all activities involved in the planning, procurement, production, and delivery of goods and services.
It also requires a deep understanding of customer needs and preferences, as well as the ability to anticipate and respond to changes in the market.
Operational excellence in the demand chain is essential to meet customer expectations in terms of quality, delivery, and price. Achieving operational excellence requires the coordinated management of all activities involved in the planning, procurement, production, and delivery of goods and services.
Pros of using Demand Chain
- Helps you anticipate and respond to changes in customer demand
- Allows you to optimize inventory levels and transportation routes
- Helps you improve quality and reduce costs
- Can be used to improve all aspects of the Demand Chain
Cons of using Demand Chain
- Requires a deep understanding of customer needs and preferences
- Can be difficult to implement without the right tools and resources
- Requires coordination between all departments and functions involved in the Demand Chain
- Can be time-consuming and resource-intensive to manage
Conclusion!
On the concluding note, it is clear that the demand chain is a process that helps you to improve quality and reduce costs through better coordination between all the departments involved in it. It is a tool that is beneficial for the long-term success of your business.
However, it is important to keep in mind that the Demand Chain can be difficult to implement without the right tools and resources. Therefore, it is important to have a clear understanding of the Demand Chain before you begin to implement it in your business.
What are your thoughts on Demand Chain? Let us know in the comments below!
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