The Global Rail

By Dave Holloman
October 28, 2009

Most times I read brochure ware or hear a speaker on the topic of demand and supply chain integration, there are way too many flow charts, power point diagrams, and acronyms to draw many insights. As I try to sort through all of this, the fundamental premise of demand and supply integration seems to be the use of end-point demand as the primary source of forecasting product movement through the entire supply chain.

Demand and supply chain often is used in the context of manufacturers working more tightly with downstream partners to gain efficiencies in the ordering and flow of product. End-point demand is a far better source of distribution and capacity planning. As point of consumption demand becomes more prevalent, gains in this type of integration are starting to happen. Product is placed more efficiently, which has the dual benefit of reducing the total product across the chain, reducing costs, and having more product where it is needed. This has the effect of raising sales at a lower per unit cost. It’s simply a matter of time before this information flow becomes seamless and more of a standard operating model.

Now events in the marketplace are happening that will spawn a rethink of how we define demand and supply chain integration. In the future, the definition will broaden from using consumer (or end-point) demand to improve the supply chain at large to a system organized around creating and supplying demand to each individual consumer. The rise of social networking will be the catalyst to spur this rethink. Social networking is a phenomenon that impacts everything, supply chain included. Facebook has experienced the largest share of global online usage in the last 3 years. Youtube is second (to see the detail of this, check out Mary Meeker’s recent presentation at the Web 2.0 Conference). Meanwhile, Apple has redefined the mobile experience and extending these platforms from the PC to the device formerly known as the wireless phone. There are now about 60,000 iPhone applications, depending upon how you count them. There will surely be more to come that will change how we think about our daily lives. No one really knows where this is going. Let’s call where we are now the “Experimentation phase.” Through use of these emerging technologies, companies are going to innovate new ways to connect with consumers and increase mindshare and revenue. The supply chain will have to keep up.

Let’s take an example. Kraft has a cool iPhone app. Since its launch last November, iFood Assistant has experienced more than one million downloads and has established a precedent for how companies use this technology. The application contains more than 7,000 recipes for the busy shopper, videos to help with preparation, functionality to translate recipes into shopping lists, and handy directions to your nearest grocery store. Wow. What a great, convenient – dare I say – entrepreneurial, idea to build mindshare with consumers and increase sales. It’s a unique innovation that has the potential to drive true, incremental demand. In case you haven’t noticed, grocery stores are driven by the coupon. Every aspect of the operations in a store from their interactions with manufacturers is defined by it. Yet one of the shortcomings in using coupons and other “on deal” events is that they don’t drive a lot of new demand. Instead, demand just gets moved around. For instance, consumers buy more than they normally would, in essence, pulling demand forward, but not creating it. But with the iFood Assistant application, new uses for products are created and literally “served up” to consumers (apologies for the pun).

It’s all good. One small exception. What if a user gets to the store and they are out of the product on the list? Unfortunately, it’s a common problem. A range of industry surveys suggest grocery store products are out of stock around 8% of the time. This percentage increases significantly if the item is included in the Sunday newspaper advertisement. So, what happens? The consumer going into the grocery store will be disappointed. Their excitement level and increased “equity” built through use of the application will decrease. Consumers will undoubtedly substitute products from another manufacturer, decreasing the revenue Kraft derives. In some cases, they could be inclined to “turn off” the application. Such are the issues with execution and bridging a demand creator with the realities of the supply chain.

To solve this specific issue, a manufacturer needs to have visibility into their product inventory downstream in the delivery chain. Claiming this opportunity is one of the next big challenges for the consumer supply chain. Once this happens, communications at an individual consumer level are possible. Going back to our example, the iFood Assistant can take the shopping list and recommend the nearest grocery store where that list is completely in-stock. This example could be extended one-step if you consider an online grocery retailer like Peapod. Once an iFood Assistant user (who also has an account with Peapod) selects a recipe and obtains a shopping list, they could be presented with an order page and a promise to deliver the necessary groceries in just in time for meal preparation.
This example – a scenario for the future – illustrates a deeper level of demand and supply chain integration. A scenario focused on the individual consumer. In this definition, supply capabilities can be matched with innovative, new marketing programs tailored to and targeting the individual.

It’s going to happen sooner than we think.