Demand-Driven Inventory Optimization and Replenishment

Chapter 13Pulling It All Together

Up until the mid-1980s, most manufacturers were entrenched in the classic push supply chain. The focus was to create long and efficient production runs designed to produce products at the lowest possible cost. The marketing of those products was based on pushing products out to the consumer and creating demand through advertising. This drove a push-pull process.

At the time, most manufacturers were the tail that wagged the dog when it came to supply chain management. The key influencer was price. Companies lowered the price to create incentives to buy. This process was called index marketing. For instance, by using the food industry as an example, we can make a point of this process. Indexing means the amount of consumption in an area based on a national average. The national average will be 100. An area with a high index meant that that area or city had more consumption that an area of low consumption. A good example of this would be refried beans. Due to the ethnicity of the southwestern cities of Phoenix and Los Angeles, the refried bean index for those cities might be 170 to 180 compared to a city like Seattle, where the consumption is an average 105 to 107.

Market indexing would make a refried bean manufacturer push a lower price in Phoenix and Los Angeles compared to Seattle. This index marketing worked well until the advent of computers and the Internet. It didn't take long for grocery retailers to put their product pricing on the Internet—kind ...