Own the Future: 50 Ways to Win from The Boston Consulting Group

Chapter 25

The Demand-Driven Supply Chain

John Budd, Claudio Knizek, and Bob Tevelson

A true demand-driven supply chain (DDSC) has always been the Holy Grail of operations managers around the world. Even when forecasts are finely tuned, an unexpected spike or drop in demand can wreak havoc on production schedules, leading to problems such as stock-outs and lost sales; inventory pileups, markdowns, and write-offs; poor capacity utilization; and declining service levels. Today, these margin-sappers are increasingly avoidable thanks to recent advances in technology that finally can make the DDSC a reality.

The advantages are substantial. According to research in 2012 by BCG, some companies with advanced DDSCs carry 33 percent less inventory, improve their delivery performance by 20 percent, and reduce supply chain costs dramatically. DDSCs are becoming even more critical as supply chains become more global and complex and as new challenges emerge.

But few companies wholly understand the profound changes they must make to their organizations to reap the full benefits of a supply chain that is truly driven by demand.

What Is a DDSC?

A DDSC offers real-time information on current demand and inventory levels to all supply chain participants so that they can react quickly and effectively—by revising forecasts given to their own suppliers, for instance, or by altering production or distribution plans—when unexpected changes arise. This allows companies to optimize planning, procurement, ...