Looking back through the supply chain, there are a multitude of organizations affected by demand management – your organization, your supplier(s), the distributors, the wholesalers, the manufacturer and their suppliers. All of these stakeholders need to manage the demand of their customers.
The Problem: Forecasting Demand
The problem is that customer orders may vary greatly in size from one month to the next. In some months, customers will order a lot and in other months they don’t order at all. Some customers will be running a promotion and order two months’ worth of material in one month, and then nothing, in the next two months. For a manufacturer or distributor, these big swings in order size can be frustrating and extremely unproductive and make inventory planning very difficult.
In turn, those planners order more than is needed from their suppliers. Then, suppliers are faced with the same wild swings in their demand, so they build in extra safety stock for their orders. The pattern repeats itself all the way back up the supply chain. This ultimately results in excess inventory at every step in the supply chain.
The Answer: Customer Collaboration
One of the first goals of an effective supply chain management strategy is to share information with your customers. Organizations need to develop strategies and programs to share information between the organizations in order to satisfy customer demand in a profitable manner.
Here are some topics that you need to discuss with your customers:
• Will the customer share sales plans with you? Can you gain visibility of what they expect to sell?
• Will the customer provide warning as to when they want to run promotions, thereby preventing a run on capacity or inventory?
• Will the customer accept smaller orders delivered more frequently?
• Will the customer participate in a consignment inventory program?
• Will the customer let you manage its inventory?
One of the overarching principles of effective supply chain management is the sharing of information. This sharing occurs between customer and supplier in order to build more solid relationships and to facilitate more effective production and distribution planning.
To learn more about supply chain improvement, please contact Joel Rosenthal at 412-697-5387 or email him at firstname.lastname@example.org
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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.