One of the major issues confronting companies that are seeking to create a demand-driven supply chain network is that many fail to establish stronger communications between their supply chain and other business units, such as sales and marketing.
In fact, according to a Gartner Inc. research document that looks at how global companies are executing their supply chain strategy, companies that are seeking to increase their profits, improve their sales forecasts, and enhance their inventory management practices must integrate supply chain decision making with information from products and/or sales so that data can drive fact-based decisions.
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This assessment comes from Gartner analysts, who have spent several years observing the management of supply chain networks at a variety of companies across several sectors including the high-tech industry, industrial manufactures, pharmaceutical companies, and medical device manufacturers.
The research has prompted Gartner to update its recommendations to build a demand-driven maturity model for companies that are looking at ways to optimize their supply chains. Gartner analysts have added another step and are calling for supply chain leaders to focus on integrating their systems and implementing the technology that will allow companies to improve their visibility across the supply chain.
The Five-Stage Demand Driven Maturity Model for Supply Chain Leaders is Gartner's latest attempt to provide a step-by-step model that sets a direction and crystalizes the challenges that companies must overcome to reach and sustain a higher level of maturity in their supply chain operations.
The Five Stages
- Stage 1: React
- Stage 2: Anticipate
- Stage 3: Integrate
- Stage 4: Collaborate
- Stage 5: Orchestrate
The Five Stages are all part of an overall plan that involves improving the collaboration between internal business units, and encourages strengthening data exchanges with customers and other partners.
The Five Stages help present a known path toward supply chain optimization, and companies in the high-tech industry can benefit from the research, Matthew Davis, director at Gartner's Supply Chain Research, said during an interview. “It helps companies assess where they are on that known path and craft a plan to move forward based on what we've seen with others who have been successful in the past,” said Davis, who co-authored the report.
In Stage 1: React, companies are driven by revenue and are usually organized by business units that are often misaligned or siloed. At this stage companies fail to organize data that tracks local or business unit performance with metrics such as business unit fill rate or regional inventory costs.
In Stage 2: Anticipate, companies start to reduce internal costs and improve synergies across business units such as logistics, sourcing and procurement, finance, HR, and IT. Companies are eager to implement policies and practices such as manufacturing efficiency, standards initiatives, and logistics outsourcing strategies. The report also notes that product development emphasizes cost reduction and the standardization of parts and materials.
At the heart of the Five Stage process, however, is the need for integration, which the report harps upon as being critical to a successful supply chain network.
At Stage 3: Integrate, companies forge deeper connections between the supply chain and other business units.
The report explains:
In this stage, the company is focused on two goals: continuous functional improvements to build upon the functional capabilities achieved in Stage 2, and integrating siloed supply chain functions to create visibility across its plan, source, make, deliver and customer service functions. Supply chain processes begin to encompass extended business processes, such as procure to pay or order to cash. Tenuous relationships with product, sales and marketing groups begin to emerge in areas like inventory management, new product introduction and forecast bias improvement. Still, the inside-out culture persists.
The organization has a common supply chain vision and organization. There is typically an overall VP of supply chain spanning multiple functions, such as planning, logistics, manufacturing, customer service and sourcing. There is an increased emphasis on supply chain planning, which is manifested in the search for better planning talent. Oftentimes, this results in establishing a supply chain COE and creating end-to-end process owner roles. Metrics begin to reflect end-to-end supply chain performance, such as perfect order, order cycle time and total inventory costs.
Once the integration stage is complete, the company is ready for Stage 4: Collaborate. At this stage, company leaders can realistically implement a customer-focused value chain that is the foundation for a demand-driven network strategy. The alignment between supply chain, product, sales and strategic marketing becomes stronger, enabling companies to address issues like product portfolios and SKU management. “The supply chain organization is more than a fulfillment organization: It is perceived as an enabler of growth and innovation,” the report says.
At Stage 5: Orchestrate, companies recognize that business growth depends on orchestrating a network of trading partners to create demand, resulting in mutual and sustainable value. This goes beyond Stage 4 with its one-to-one collaborative relationships with customers and suppliers. Companies are now working together across internal and external networks, and recognize that they'll be in a better position to increase revenues if they develop a systematic approach that converts product and service innovations to operational excellence. This can only occur when the supply, demand, and product cycles are synchronized.