In an effort to smooth out extreme fluctuations in demand, a company introduced an incentive program that rewarded sales people according to the number of pallets of product they sold by month end. The sales reps responded by encouraging customers to order an unnecessary truckload of product close to the end of each month, and then “rejecting” the product early the following month.
Does this story sound familiar?
Even if it doesn’t, it’s a striking example of a problem that seems to have become almost endemic in many industries: a failure to track and meet true customer demand.
In this case, the sales group had no visibility to the transportation costs incurred by the incentive program, and deemed it successful. Had the outcomes been properly monitored, the sales force would have seen that the program did not increase sales volumes, actually added cost, and required the company to dispose of “rejected” product.
The impaired visibility created a false picture of customer demand. On the surface it looked like buyers wanted more product. In reality, the extra sales revenue was fool’s gold because the demand was a self-generated illusion. Moreover, the lack of transparency meant that these problems remained undetected.
In terms of the difficulties many companies face in satisfying customer needs, this example represents the tip of the iceberg.
There are many layers to the problem. The demand picture has become incredibly complicated thanks to factors such as the complexities of globalization and the splintering of sales channels. Consumers, particularly in the fast-growing online world, expect fast, error-free deliveries at the lowest cost, putting more weight on the accuracy of demand forecasts as well as the flexibility of supply chains.
Often the issues are deeply rooted in the way companies operate. For instance, some corporate structures have evolved in such a way that communication between departments is poor and this creates organizational barriers that distort the company’s market view.
Thankfully, issues like these are gaining recognition and a number of enterprises are developing solutions. An example is the use of transportation management system (TMS) technology to help companies generate a holistic view of global supply chains (for more on this, see the posts Blueprint for a Truly Global TMS and The Global Control Tower® Enables Compliance).
Here are four specific ways in which technology like this can support companies in their quest to keep pace with customer demand.
1. Integrate company data with information from suppliers. An integrated technology platform helps companies and their suppliers share data and communicate about customer orders. This streamlined flow of information enables the company to make alternate plans if supply will be interrupted and to better manage risk.
2. Coordinate internal ordering and fulfillment channels. Many companies develop multiple ordering channels, each using a different independent system. If the distribution system also runs independently of the ordering channels, obstacles can occur, preventing quick flow of order information within organizations and impeding quick, accurate fulfillment. Combining information from the ordering, distribution, sales, finance, and supply chain divisions on a single technology platform can improve product delivery processes.
3. Obtain visibility throughout the global supply chain. Especially in an environment that operates on low inventory and JIT fulfillment, companies must know where inventory is located at all times (see the recent post Modern Day Challenges of Leaning on Lean). At a minimum, this means gaining visibility within distribution centers and stores. At a higher level of efficiency, companies can integrate warehouse management systems with supplier inventories to expand product delivery options for customers in a variety of timeframes.
4. Link logistics and distribution networks. When information on orders is combined with freight systems, the company has the data to plan and optimize their distribution network. Network modeling can enhance this efficiency with proper location of distribution facilities and more strategic use of delivery methods to meet deliveries according to the company’s strategies and the consumer’s demands
Anticipating consumer buying decisions has never been more difficult, and the challenge is likely to become even tougher. In response, supply chains have become much more proactive and adopt technology such as TMS solutions to help them make the transition.
This post is based on the C. H. Robinson white paper Supply Chain Logistics as a Driver of Business Strategy and Profitability. Download the white paper here.