The Supply Chain’s Role Towards True Demand Fulfillment

Jovy Jader // Uncategorized

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March 1, 2015  

How much a firm sells supposedly depends on the demand of individual end-users or how much a user really needs. This is known as true demand and it is said that the firm who captures and serves this demand successfully versus competition will emerge victorious.

True demand, however, is not easy to capture, if at all. This because marketplace demand in reality is based partly on perceived need against true need. Grocery customers, for example, would tend to purchase more basic goods if they believe there are price increases or scarcity of items in the near future.

Nevertheless, firms have tried to determine true demand by a variety of methods. Often-used approaches include sales forecasting and market research. Technology firms have proposed advanced software and hardware such as placing radio-frequency-identification (RFID) microchips on products to directly monitor usage but this was not adopted due to privacy issues. Many firms, for now, make do with data from point-of-sale (POS) information from retailers.

But as intricate a forecasting technique or a market research study may be, if users buy based on perception as much as on need, true demand will continue to be impossible to pin down. A great deal of what causes users to buy based on perception is the availability of products.

In many studies we've done for clients in different industries, much of what distorts demand patterns comes from speculation. In one retail firm, we saw swings in the purchase of vitamin products. We nailed down the cause of the demand swings to stock run-outs at several branches of the firm. Regular buyers would normally buy the same quantities of vitamins month after month. When the product ran out, however, customers became anxious to the extent that they doubled their purchases when the firm replenished its branches with the item. In this sense, supply chain managers play a crucial role in avoiding inventory shortfalls that may hamper the firm's effort to determine true demand.

In the first place, supply chain managers should be pro-active participants when it comes down to efforts in determining true demand. Supply chain managers have first-hand information and knowledge on customer buying patterns. They know what it would take to manage inventories to avoid run-outs. They are aware of the response times from order to delivery. And they know the costs that would underlie trade-offs in ensuring products are available in the market.

Determining true demand is not only about obtaining how much customers are buying. It is also about finding out how much customers will buy. This is where the value of face-to-face surveys comes in with the participation of supply chain managers.

In companies we have engaged with, we learned that customers reveal much about their future plans with their suppliers when issues such as delivery reliability and product quality are raised. If deliveries are reliable, customers assure continued purchases. If there are problems such as poor quality products, customers become reluctant to buy. It didn’t matter what industry the supply chain manager comes from. If customers have a positive experience with a supplier, they will be eager to buy. If it’s negative, they won’t.

Firms benefit when their supply chain managers join sales and marketing in understanding the marketplace first-hand. Not only is it about using data from the surveys to make forecasts but also it’s about becoming empathetic of what customers need and communicating it into the supply chain strategy that will assure a positive experience for them.

True demand is an ideal that is almost impossible to determine. Forecasting and serving demand as close to possible to what it truly is would be a major advantage for the firm. The supply chain manager has a stake in ensuring least distortion to forecasting true demand. Not only is it the supply chain manager's role to manage product availabilities to avoid speculation that leads to demand by perception, but also it is the supply chain manager's responsibility to put himself in touch with customers to know what their future plans are with the firm. How well the firm's supply chain relates with its customers is the key to determining and fulfilling true demand.

About the Author

Mr. Jovy Jader is a Management Consultant and Regional Speaker on Supply Chain Management. He has directed and implemented Supply Chain Management projects both local and international which have resulted to company-wide improvements in revenue, working capital, total cost, and service levels. Mr. Jader was formerly with Procter & Gamble Philippines and Coopers & Lybrand/PricewaterhouseCoopers.

Jovy Jader

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