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The Demand-Driven Supply Chain and Demantra

Written By: Olin Thompson
Published On: April 27 2003

Introduction

Demand-driven supply chains focus on pulling demand and maximizing effectiveness and profitability while traditional supply chains push products and create efficiencies. This difference is the key to improving all supply chain processes and generating significant cost savings and growth.

The concept of the Demand-Driven Supply Chain is the convergence of marketing and supply chain management. In the consumer products industries, this is of key importance. Marketing drives demand through the use of promotional activities advertising, deals, point of sale promotions, etc. The supply chain must stay in synch with marketing and marketing must stay in-synch with the supply chain for the generated demand to be fulfilled. The Demand-Driven Supply Chain requires a single, consistent, demand-based plan that optimizes marketing, inventory and replenishment decisions.

Demantra

One vendor pursuing this concept is Demantra (www.demantra.com). The Demantra Suite claims collaborative 360 visibility into enterprise planning. The Demantra Spectrum Suite includes: Marketing Planning and Analytics, Demand Management and Inventory Planning and Optimization. The vendor claims documented results including forecast error reductions of as much as 40%, driving finished goods inventory reductions of up to 60%, plus proven ROI of 100% to 500% in the first full year of operation. Demantra claims 65% of its customers in North America with an additional 35% in Europe. Demantra targets its solutions to a limited number of industries including:

Industry Sample Customers
Industrial and General Manufacturing Printpack, Gulistan Carpet, Standard Commercial Corporation, Armstrong
Pharmaceutical, Healthcare and Medical Devices Johnson & Johnson, Alpharma, DeRoyal, Baxter
Consumer Products: including Food and Beverage; Household, Health & Personal Care; Fashion & Apparel; Media & Unilever Bestfoods, Hunter Douglas, Otis Spunkmeyer, Footjoy, Bush Brothers Beans, Sauder Furniture
Entertainment and Durable Goods

Demantra Spectrum strives to enable the convergence of marketing and supply chain management by balancing consumer demand against shelf life, appropriately planning production resources/constraints initiated by trade promotions, and determining the demand quantities for new product introductions. Spectrum's planning & analysis collaborative environment addresses companies with their primary business concerns: customer satisfaction and retention, freeing-up working capital by reducing inventories, increasing returns on trade promotions, bringing new products to the market faster than competitors, and achieving top-line growth by reducing stock out situations. The objectives of end-to-end supply chain visibility are better plans, better service, increased inventory turns, and higher profit margins.

Case Study: Gulistan Carpet

Headquartered in Aberdeen, North Carolina, Gulistan Carpet (www.gulistan.com) is a 76-year-old, privately held company with three separate plants that produce more than 16 million yards of carpet each year. With a focus on fashion and quality, they have shunned the commodity market and produce high-end product for both residential and commercial customers. They distribute through some 4,000 retailers nationwide, from small independent shops to large home center retailers.

Gulistan had determined that their existing planning process was breaking down. It was based on historical dealer orders and relied heavily on manual intervention. The objective of this process was to determine what styles would continue to be made and how many, as well as what styles would become obsolete. Given the broad range of styles and ever-changing customer preferences, it was extremely difficult for planners to make informed decisions. As a result, they ran the risk of accumulating the wrong inventory in some cases and stocking out in others. Richard Witt, Vice President of Supply Chain, Gulistan Carpet tells us, "It was like trying to use a Ouija board to determine which styles to continue making, we clearly needed a better statistical model to help us drive our production."

Gulistan's goal was to reduce inventory while maintaining high service levels, and to better manage the product mix and distribution channels based on accurate demand planning. Their strategy to achieve this goal was to leverage accurate customer level forecasting to drive production and inventory management. Gulistan needed to model product and distribution channels and to forecast and analyze data at all levels of aggregation. They chose Demantra's Demand Planner. It provides Gulistan with forecasts at the customer level, factoring in key variables such as seasonality, trends, cannibalization and life-cycle management. Complex decisions regarding new product phase-in and product obsolescence are now made based on accurate and real-time market information. As a result, Gulistan is able to forecast at varying levels of aggregation and calculate recommended safety stocks by factoring in forecast error, customer service-levels and lead times. Lowering the forecast error substantially has had a direct impact on reducing the safety stock levels.

Gulistan's results include:

  • 25% reduction in inventory with no decrease in customer service

  • 40% improvement in forecast accuracy

  • Capability to forecast down to the SKU level

Recommendations

Enterprises with complex products and supply chains and those with significant promotional activities and other such events should consider the concept of the Demand-Driven Supply Chain. Integrated marketing, inventory and replenishment decisions clearly hold significant promise for these enterprises.

If Demand-Driven Supply Chain is appropriate to the enterprises business, Demantra should be placed on the short list.

While a relatively small vendor by traditional metrics, it's development of satisfied customers, scale and expertise in the emerging market of the Demand-Driven Supply Chain bodes well for its future. Demantra, however, must make the marketing investment to be seen as a player within its target markets. This includes the missionary role of selling the concept of the Demand-Driven Supply Chain as well as its own solution.

About the Author

Olin Thompson is a principal of Process ERP Partners. He has over 25 years experience as an executive in the software industry. Olin has been called "the Father of Process ERP." He is a frequent author and an award-winning speaker on topics of gaining value from ERP, SCP, e-commerce and the impact of technology on industry.

He can be reached at Olin@ProcessERP.com.

 
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