Midsize and large enterprises typically have operational systems -- ERP, MRP (manufacturing resource planning), and SCM -- for distribution, manufacturing, and inventory efforts, as well as BI and data-warehousing systems to manage the underlying data and business rules. Implementing a demand-driven system typically means augmenting these existing enterprise systems rather than building new ones, and it can be done in stages as each incremental effort pays off, notes Kevin O'Marah, an analyst at AMR Research.
Enterprises are also likely working on SOA (service-oriented architecture) and Web-based services, which provide the tools needed to run demand-driven processes among supply-chain partners. "SOA is vital because it lets you overlay all this siloed [demand and supply] information, to look at it in real time," says Mike Grandinetti, senior vice president at Yantra, a supply-execution software provider.
When implementing a demand-driven system, "the IT solution is only 5 percent of the supply-chain effort," says John Paterson, chief procurement officer of IBM. Analysts and consultants agree: The vast majority of the effort belongs to the business managers, who must determine the right processes and business rules, as well as the meaning of the data they get. "Then you figure out what information you will make available in the supply chain and what information you can get," Common Sense's DePalma says.
Starting With Demand Data
To be demand-driven, both retailers and product makers first need to have sufficient history -- at least two years -- on which to build their initial demand models. But most companies have only a history of what they shipped or received, not what they sold. At best, most companies are looking at weekly sales data, says Doug Percy, CEO of Blue Agave, which helps CPG manufacturers use sales data to more accurately match supply with demand. Wal-Mart provides such data several times a day.
The few retailers that now provide POS data largely limit access to their immediate suppliers, notes Jim Culliton, manager of supply-chain services at Hitachi Consulting, but if POS data were made available to suppliers further down the supply chain, those suppliers could more easily anticipate demand changes. Analysts cite two reasons for this limited sharing: One is that retailers are limiting initial deployment efforts to their larger suppliers; the other is that a retailer might not have a business relationship with companies further down the supply chain. In the latter case, suppliers that do get access to POS data should consider making it available to their own suppliers and manufacturers, Culliton says.
Even when POS data isn't available from the retailer, product makers gain a better sense of demand by using delivery information from distributors. This information is typically available in EDI format, notes analyst Dominy, and provides some insight into store sales by tracking their replenishment patterns. As RFID systems get implemented, Dominy says, such systems will have more data on inventory location, providing better insight into what's staying in stockrooms unsold.