Alignment – Procurement’s Great Balancing Act
Globalization places great demands on the supply chain, in particular the challenge of aligning demand and supply. The requirement is to maximize product availability and supply flexibility while minimizing costs, inventory and investment levels. This is no easy task and one that relies on the development of a highly skilled, integrated and collaborative; procurement, supply chain and logistics function.
Alignment of Demand and Supply
It sounds simplistic but the role of procurement SCM (supply chain management) is to ensure the right products are available;
– in the right place
– at the right time
– in the right quantities
– and of course at the most economical cost.
This challenge is getting more difficult as companies wrestle to align complex supply chains and unpredictable global markets.
3 Strategies For Alignment
There are 3 ways in which procurement SCM (Supply Chain Management) must flex to ensure the alignment of demand and supply, as follows:
1. Accurately forecasting demand and responding rapidly to market changes
2. Facilitating shorter product lifecycles and faster time to market required by product innovation (this includes; value engineering, supplier development and supply network optimization)
3. Managing internal demand, including; approvals processes, spend analysis, consolidation, aggregation and so on.
In this insight we are going to focus on the first of these.
The Ultimate Question
“What to produce?” and ‘How much to ship?’ – these are the ten-million dollar questions in respect of aligning demand and supply. The fact that the product is destined for customers in Atlanta but manufactured in Bangalor is irrelevant. The implications of getting it wrong are costly.
Organizations must minimize levels of inventory and working capital while at the same time retaining the ability to accommodate a sudden spike, or fall in demand. This requires sophisticated systems, accurate real time information and a whole lot more.
The market severely punishes any organization that fails to ship product as planned, or that leaves customers disappointed and shop shelves empty. It is procurement SCM’s job to make sure this does not happen.
The Complexities Involved
Here are two examples to highlight the complexities inherent in aligning demand and supply:
(a) A mobile phone company’s latest model ships late to a lead markets for the peak Christmas period. As a result competitors steal significant sales from the company.
Effective cross functional collaboration is essential to aligning demand and supply, but this can be a challenge. In this example:
– Procurement blames design – engineering, for failing to involve it until the last minute and therefore making the job of sourcing components and raw materials more difficult.
– Design counters criticism by stating that market demands for innovation have shortened product lifecycles and make speed to market essential.
– Operations blames sales and marketing for pushing a product irrespective of capacity.
Collaboration must be external, as well as internal. For the mobile phone supplier another rancorous dispute arises with its key suppliers who have traditionally been managed on a ‘treat ’em mean keep ’em keen’ basis. It has failed to appreciate that the fortunes of the corporation and its suppliers are intertwined like never before!
A prerequisite to aligning supply and demand is that the key members of the supply chain are themselves aligned.
(b) A newly launched detergent product while struggling to make inroads in many states, experiences brisk demand and stock-outs in 6 major urban areas. The company is slow to respond – its stocks are in the wrong place!
While the trend towards the homogenization of markets and cultures is unstoppable, supply chain managers must be attuned to stubborn local, national and regional variances.
The challenge is to ‘think globally and act locally’ in aligning demand and supply. There are both internal and external elements of aligning demand and create opportunities and threat for buyers and sellers.