I have a secret. Everything I know about managing a successful supply chain, I learned from my mother.
No, my mom didn't have a PhD in supply chain management or an MBA in operations. Her credentials were even more impressive than that. My mom was a high school graduate, domestic goddess, and the chief operating officer of a family of eight.
Despite the often-unpredictable demands of her four sons and two daughters, mom was somehow able to ensure that our household ran smoothly. Key supplies like socks and milk always seemed to be replenished just in time, and whenever a new item was added to the nightly bill of materials, a.k.a. the dinner menu, she was sure to include those we liked in the auto replenish cycle, while those we didn't care for were summarily vanquished from the Fay family supply chain.
It wasn't until I started my own family that I realized just how complicated her job was. As my wife and I struggled to keep up with the needs of our growing family, I gained an immense respect for the skills my mother demonstrated all those years ago.
One day, I asked my mom how she was able to keep it all together. She shared two essential elements of a well-run household, which, as it turns out, are also critical to a successful sense-and-respond supply chain: communication and collaboration.
For example, my mom started the demand planning process at the point of consumption. She would sense how things were going with our family supply chain by asking critical questions (“Do you still have clean socks?”) and would then collaborate with us to understand how to best support our needs. This same model can be applied to supply chains.
The sense-and-respond approach involves having information flow back through the supply chain ecosystem to you, as opposed to from you, which is how most command-and-control demand planning models operate. Unlike the command-and-control approach where forecasts often don't effectively reflect end demand, forcing companies to juggle their supply based on availability, sense-and-respond data is more accurate, timely, and pertinent.
This is where many demand planning tools fall short. While these tools are typically very good at providing the right exception-based data, the reliability of the data source and how companies then use that data is where problems arise. For the supply chain to sense change in demand and then respond quickly, much closer ties between supply chain ecosystem partners are necessary, as is shared responsibility for providing accurate data.
One of the best examples of the power of the sense-and-respond approach is the new vending machine from Coca-Cola called the “Freestyle.” This machine dispenses up to 150 different flavors of soda from one self-contained machine.
In a 2009 Business Week article, Gene Farrell, vice president of the jet innovation program at Coca-Cola North America, was quoted as follows: “The Freestyle fountains are connected to the Coca-Cola network, and are constantly reporting sales data — by brand, location, and day part. It's a tremendous new tool for understanding how customers consume our products.”
Not only does this equipment enable Coca-Cola to instantly satisfy just about any customer's need, it also provides the company with the means of gathering precise demand information by brand, location, and time of day. For example, Farrell noted that after the release of the Freestyle units, Coca-Cola discovered that Caffeine-Free Diet Coke sales spike after 3:00 p.m.
The Freestyle is a prime example of how gathering demand data closest to where the end item is consumed allows you to share better information across your supply chain and collaborate with your partners to make better decisions, and thereby maximize your revenue.
Looks like my mom was ahead of her time!