Supply Chain Twins - Randomness of Demand & the ever catching up of the Supply side

Demand is the trigger for the Supply side of the Supply Chain. Supply side Strategies, Tactical plans & Operational execution activities are predominantly a function of the Demand side of the Supply Chain.

The sanctity of the demand figure goes a long way in determining the performance of the Supply side. When it comes to accountability though, in many instances the Demand subordinates itself to the dynamics (or chaos!!) of the market place while Supply side is always the one which bears the brunt of not being able to meet the demand.

More often than not, Supply side of the organization has experiences similar to what the Indian Healthcare system is experiencing at this very moment. I see a lot of analogies which can be leveraged to improve enterprise Supply Chains holistically.

a. Demand is random but Supply is a Structure - Demand arises randomly, particularly if its a New Product. Responding to such cases the Supply side very efficiently develops new sources of supply, creates new capacity & being the first time also gets some amount of Lead time. In all probability it also gets organizational patience to build the Supply side capacity. Demand side has subordinated itself to random behaviour of the market. Sounds very close to the first wave of Covid-19 in India. Sudden demand, no readiness of the Supply side but the stakeholders were patient while the Supply side built itself to meet demand.

b. Subsiding demand is no indication of future demand - Supply side of the organization many times experiences that demand doesn't live up to its expectations. Hence it becomes slack. However what is missed is that, the lack of understanding of the demand from Demand side of the organization is no guarantee that the Supply side may not face an uphill task in near future. Supply side has to bear in mind that Demand after-all is not a slave of the Supply side, vice-versa may be true though. In such scenarios, Supply side needs to decouple itself from the Demand planning side in the short term till the underlying premises basis which the demand is projected don't vanish. India experienced the same during the Nov-20 -Feb-21 period when Supply side requirements subsided. Doesn't mean one reduces the Supply side capacity though.

c. Supply side always has higher accountability - In my consulting work, I realize that in most of the cases Supply side is held more accountable than the Demand side. Inability to plan the Supplies, even though the Demand side had no visible projections of the SKUs, results in loss of Revenue, Reputation & Risk. I come across so many Supply side professionals who feel the stress of continuously anticipating the unanticipated. Most the times Supply side responds extremely efficiently to meet the multiple times surge in demand but the perceived lack of readiness leaves damaging impressions. Second wave of Covid-19 in India is a good way to appreciate it. Subdued demand in the months preceding Feb-2021 led e.g. Pharmaceutical Manufacturers to cut down on production of Remdesivir or Bed capacity was optimized as the demand faded away. Sudden surge of almost 20x since mid Feb till date has led the Supply side gasping. Demand surge is again random but all critics are gunning the Supply side. Any Healthcare Supply Chain which experiences a 20x demand surge will be humbled. None needs to know why the Demand increased multi-fold but what all need to know is why has the Supply not met the Demand.

Enterprises of the 21st century need to transform the Demand side processes dramatically. Too often either the process is loosely defined with less accountability, many a times is less sensitive to market place changes and often lacks the technology applications to better the outcomes. The eventual outcome is a sub-optimal Demand plan which over its execution horizon creates Supply side chaos.

The Supply side of Supply Chain is at a very tricky situation in next few quarters or years. Demand variations shall keep happening which are beyond the old normal. Hence Redundancy on the Supply side of the Supply Chain needs to be part of the design.

Comments

  1. UnknownMay 3, 2021 at 2:47 PM

    Very nice and effective use of current Covid condition to explain SCM challenges !!!

    ReplyDelete

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