When on-demand is the norm, can your supply chain respond?

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.

5 minute read 1 Jun 2018

Consumer expectations — including of choice, service and cross-channel experience — are always changing. How can supply chains keep up?

In the era of omni-channel shopping, supply chain capability is a key differentiator with the power to determine the ultimate shopper’s experience.

Yet traditional supply chains can’t meet 21st-century service expectations. Companies know this: 81% of senior supply chain executives say their supply chain is not fit for purpose for omni-channel.

The digital world has shattered two fundamental assumptions of the traditional supply chain: unknown demand and limited capacity. Connected shoppers, devices and objects reveal real-time demand, while a web of connected carriers, contractors, service providers and suppliers make capacity almost infinite.

To succeed in these new conditions, companies need to evolve their supply chains into demand response networks (DRNs) that are built to motivate, sense, modify and respond to demand in real time and in an agile, efficient and sustainable way.

What shoppers expect today:

  • Anytime, anywhere shopping
    Shoppers expect to be able to engage with brands and products through multiple channels at any time and place.
  • Seamless shopping across all channels and devices
    Consumers expect exceptional customer service, seamless across all channels and devices, and always on.
  • Personalized interactions and products
    Consumers prize memorable and personal interactions with brands, for example, through co-created events, online and offline communities and social-media events.
  • Transparent, holistic information
    Consumers conduct thorough research before they buy, and expect transparent details on every aspect of the product or service, including price and customer reviews.
  • Flexible delivery
    Shoppers do not only expect free shipping and returns. They also want their purchase to arrive at a time and place convenient to them, and the flexibility to make last-minute changes to delivery arrangements.

The challenges of meeting consumer expectations:

  • Controlling the cost to serve
    The cost of getting goods to omni-channel consumers on their terms is spiraling as demand increases. And in their rush to develop mobile commerce capabilities, companies have often bolted on systems and processes without fully integrating them with traditional channel fulfillment. As a result, many consumer goods manufacturers and retailers are experiencing continued margin erosion.
  • Fulfilling dynamically
    According to EY’s 2016 global survey of consumer products leaders, only 20% of CP companies are confident they can rapidly align their supply chain activity with changes in demand. Companies are struggling to address questions of where best to store inventory and fulfill orders from any channel to any location.
  • Understanding big data
    Connected consumers, shoppers, equipment and devices all generate petabytes of structured and unstructured data, which can help to explain demand behaviors and to measure the impact of marketing and commercial activities. But only 20% of retailers feel they are able to collaborate with partners to get a real-time, end-to-end view of the value network chain.

From a linear chain to a dynamic network

A DRN can help meet these challenges. It is a dynamic web of processes, technologies and companies that all work toward a common objective: satisfying demand.

DRNs are driven by algorithms that embed transparent business rules to optimize the network’s resources. In such a network, every node is connected and intelligent, allowing the business to read fluctuations in demand and decide how to modify and respond to them with unique market activities.

Companies that are part of the DRN may have specific roles and tasks, but each member of the network is aware of every other member’s capabilities and capacity at any given moment. DRNs are highly collaborative, allowing members to reduce waste and free up resources that can be invested in innovation, marketing and competitive pricing.

The DRN model also enables companies to be much smarter at fulfillment. For example, retailers can assign the fulfillment of e-commerce orders to overstocked stores, reducing the need for markdowns and providing rapid access to all inventory across the business. And manufacturers can use the transportation and warehousing capacity of other network members to maximize response times without substantial increases in logistics costs or capital expenses.

Evolving to a DRN — three essential tasks:

1.  Harness real-time demand signals

Businesses need to capture and interpret demand signals so they become meaningful to the organization. Teams in both operations and IT must lead the digital transformation, investing in sensors, beacons, listening campaigns and remote order entry.

When demand signals are captured, the organization can decide what customized response to trigger in the rest of the network.

Ultimately organizations will be able to build and understand their “demand curves.” And this will enable them to find effective ways to modify demand behaviors and will supply the information needed to drive future decisions.

2.  Align operational and commercial functions

Businesses must enable their commercial and supply chain functions to collaborate closely in order to understand demand and modify it before responding. This means going back to basics: planning and executing forecasts that integrate the demand and supply sides of the business to make sure the right products flow through the right channels to the right markets.

When companies integrate go-to-market commercial strategies with route-to-market supply chain strategies, they can work through demand volatility challenges and drive agility and effectiveness. They can also focus their investments for the short, medium and long term to generate profitable growth.

3.  Actively manage the capacity network for maximum profit-to-serve

To handle the demands of emerging channels and markets, companies must plan and execute projects that integrate the demand side and supply side of their business. This will help tap those accounts and channels with the biggest opportunities at an optimal cost to serve, fueling profitable growth.

Segmenting channels based on service requirements and determining commercial value are critical. Companies that can accurately calculate the service and cost implications of requests from channels and customers, as well as undertake joint value-creation initiatives, will witness a major impact on their bottom line.

A properly formulated and well-executed demand response strategy offers superior levels of service, enables service innovation and captures more value for all members of the network. All this happens at a cost to serve that can be managed easily, boosting profitable growth.

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Summary

Demand response networks will enable consumer products companies to meet the expectations of 21st-century consumers while controlling costs and driving profits.

About this article

By

Glenn Steinberg

EY Global and EY Americas Supply Chain Leader

Helping companies transform, create value and optimize business performance. Thirsty for knowledge. Ski enthusiast. Husband and father of two Michigan Wolverines.