We’ve all been subject to the vagaries of the weather at one time or another--camping holidays, picnics and Wimbledon are all events that can be made or broken by inclement or unexpected weather. Who can forget the huge floods of late 2013/early 2014 causing large areas of the South West of the UK to become inaccessible?
This got us thinking, if you’re managing a supply chain, especially if you’re thinking about becoming demand driven, what would the business impact of these weather disasters be, and how would a demand driven supply chain cope compared to traditional one?
What does it mean for a supply chain to be demand driven?
In the journey to becoming more demand driven, the biggest shift is moving from “build to forecast” to “build to order”, which can seem very daunting, particularly when you take into account having to deal with unexpected disruptions. The ability to communicate up and down the supply chain in real time isn’t typically supported in traditional supply chains, as it requires unprecedented collaboration and orchestration capabilities.
For anyone who manages a supply chain it can feel as if the odds are constantly stacked against you. In those recent floods mentioned above for example, more than 50,000 businesses could have been impacted. Looking at what happened, the top five industries most impacted by the floods were:
This industry list tells us that, perhaps with the exception of Tourism, UK supply chains would have been heavily affected. When you examine further and see that the two biggest issues were people not being able to get to premises, and deliveries not being able to get through, you can see the most likely results would be backorders, inventory shortages and dissatisfied customers as companies scramble to adapt and react.
We wanted to examine how a demand driven supply chain would handle people and delivery disruptions, and how that might compare to a traditional supply chain:
Traditional Supply Chain Scenario
There would be an inherent lag time between the flood and the reaction across the supply chain and the company’s supply chain partners. The more manual processes and communications between partners, the greater the lag time.
For example, if the floods caused a supplier or internal distribution center to go offline, backorders would stack up as customers continue to place orders (in the absence of a real time update on availability) and while an alternative fulfillment route is found. Over time, this may cause issues with excess inventory, compounded if demand drops for any reason, leading to potential price reductions later.
For those customers who can’t be reached by delivery partners, there would probably be delays in communication and delivery rescheduling, potentially leading to order cancellations, this would further compound excess inventory costs, not to mention the customer satisfaction issues.
Demand Driven Supply Chain Scenario
A primary enabler of a demand driven supply chain is a modern B2B infrastructure that automates processes and improves communication between supply chain partners. Implemented effectively, it can remove communication barriers and the resulting lag times that occur in response to changes.
So in the above scenario of a distribution center going offline, fulfillment could be re-routed immediately and/or availability updated immediately on the demand side. This would remove the potential for backorders to stack up, and set customer expectations accurately. Alternatives could be presented to customers (B2B or B2C) in terms of what can be fulfilled, to mitigate any impact from lost orders.
At the same time, those customers stranded in the flood plains would (assuming they still have broadband) be sent real time updates on their orders, as supply chain partners locate alternative delivery mechanisms and schedules. If demand in that region suddenly shifts to wet weather gear, the supply chain would be able to react quickly, diverting stock from regions not experiencing that weather pattern, without resorting to additional supplier orders.
One of the primary reasons that leading companies are shifting to demand driven supply chains is because they recognize that their business can live or die by reputation and customer satisfaction. Shifting to demand driven supply chains means that accurate promises can be made even in the face of adversity.
Modern B2B integration technology is crucial to enabling this type of supply chain, from extending business processes beyond the four walls of the company, security rich business partner integration and to support for multiple communication protocols.
Without this technology, it’s impossible to achieve the synchronization needed to anticipate and rapidly respond to customer demands.
Download our white paper to learn more about how B2B Integration enables more competitive supply chains.