Ahead of the supply-chain curve

Nobody matches Dell in creating a supply chain that responds to demand, but others will follow

Demand-driven supply chains are more common in some industries than in others. The electronics, automotive, pharmaceutical, and aerospace industries are furthest ahead, because they either have short product lifecycles or rely on just-in-time manufacturing to keep down overhead costs. Some update their demand plans hourly, forcing them to share more information across the supply chain to ensure optimum levels of production and delivery.

Dell Computer is perhaps the best-known example of a successful demand-driven manufacturer, though the fact that it's also a retailer -- one that takes custom product orders directly -- gives it a natural advantage, notes Dean Strausl, executive director at Electronics Supply Chain Association. But even Dell has to predict what components to order, and when its demand slips out of alignment with what it can build, it alters consumer demand by changing pricing and availability, steering customers to what Dell can build quickly, he says. That shows the importance of applying demand and supply information at all points of the supply chain.

Makers of discrete goods -- apparel, furniture, and other style-oriented products -- as well as grocery and other mass-market retailers are only now looking at demand-driven approaches. That has a lot to do with the short life span of much of their inventory, so the production and sales window has been too small to make adjustments outside of distribution. Mass-market retailers have also come late to the demand-driven approach, because they typically live on tight margins and avoid large infrastructure investments, says Don DePalma, an analyst at Common Sense Advisory. Except for Wal-Mart, grocers are largely absent from the demand-driven effort. "The grocery industry in general has been reluctant to share information with customers," notes John Shaw, IT director at Litehouse Foods.

Makers of continual goods -- potato chips, notepads, staplers, and the like -- are rarely demand-driven, says Accenture's Waheed, perhaps because their product flow is fairly regular. But they should be able to adopt the concept easily, given they already use continual-refinement processes in their manufacturing, and the concept is easily extended to the distribution and retail processes. Why they haven't is a mystery, he says.