Supply chain initiatives have introduced the gradual change from “pushing” the manufacture of products into inventory well ahead of demand, and holding stock until customer orders arrive, to a more customer-driven model where customers “pull” demand directly against manufacturing capacity, as needed. Companies are trying to more accurately forecast demand, shorten manufacturing lead times, reduce inventory at all supply chain levels, and generally move towards a “make-to-order” business model. But this is only the tip of the iceberg for food and beverage manufactures who want to be “fit for supply chain business” in a demand-driven world. Part of focusing on being demand driven includes balancing and smoothing both demand and supply levels. Emphasis on sales and operations planning is gaining momentum as a formal process to help manufacturers optimize and find this balance. As technology and business tools are being put in place to support real-time visibility and smarter decision making, this is also resulting in higher levels of perfect order attainment – by providing continuous access to information via collaboration, bar coding and RFID.
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Explore this issueApril/May 2006
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Customer service for food and beverage manufacturers has always been about having “the right quantity and quality product, at the right time, at the right location and the right price.” Until now, the de facto “right supply location” has been the distribution center, where finished goods inventory replenishment levels have been managed on a weekly basis. Carrying added safety stock – often at multiple locations – is still a common way of insuring enough supply to meet uncertain sales volumes, such as spikes in demand. But this certainty comes at a price.
In the food and beverage industry, the end consumer at the final point of sale is often based on the store shelf, the target replenishment point. But whether manufacturers replenish inventory directly to store shelves, or supply products to distributors’ warehouses who in turn manage their own supply channels – for food and beverage manufacturers this really still equates to having product quantities at the right point, in place, at the right time. To attain higher levels of perfect order customer satisfaction, manufacturers are shifting from relying solely on estimating product time-phased demand within their customer’s supply warehouse, to a more focused view of measuring and managing both demand and supply, based on actual feedback from the end point of use, as a true indicator of their own customer demand.
While making and stocking warehouse inventory levels for products is a traditional way of improving perfect order results, in a market known for demand highs and lows, hidden costs can begin to accrue, i.e. due to using manufacturing capacity, resources, and warehouse space well in advance of actual demand. Inventory aging dates and expiring shelf life concerns also contribute to potential sources of waste. Reducing the need for safety stock can improve your ability to respond to new or unexpected demand. Of course, such cost tradeoffs must always be balanced against the risk of failing to achieve agreed customer service targets. But, by gaining a better understanding of the tradeoffs, you can improve your ability to satisfy true sales demand, with improved customer service and overall market competitiveness. To squeeze out even more cost reductions within the supply chain, demand-driven initiatives target lowering inventory levels at all supply locations, which inevitably means more frequent deliveries of smaller quantities. In turn, more frequent deliveries of smaller quantities pushes changes in business behavior back on the manufacturer, to constantly produce a wider range of products, using smaller production batch runs.
So, being demand-driven is about more than just being responsive. Having real-time visibility of inventory at the point of use, and anticipating variable end customer demand, introduces new opportunities for manufacturers to influence and shape demand, as part of reducing peaks and valleys in market pull. This includes participating in new product development and market introduction, product end of life transitions, as well as collaboration and participation in both your own, and your customers, targeted marketing initiatives (i.e., promotions, seasonal buying patterns, etc).