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University of Tennessee -- Previous Webcast Jan 22 -- Best Practices Leadership Forum-- Nov 27-- Part 2: S&OP Implementation: A Case Study Oct 30-- Part 1:S&OP Closing the Chasm Between Theory and Practice Previous Webcast July 31 -- Previous Webcast May 8 -- Previous Webcast April 3 -- Steelwedge Momentum: 01/16/2008 -- Steelwedge Software Announces SAP Powered by NetWeaver Certification for its Sales and Operations Planning (S&OP) Solution |
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| Demand and Supply Integration (DSI) |
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Dell Inc., serves as an early example of successfully implemented demand and supply integration (DSI). In 1999 on my first foray into on-line computer service, I ordered a computer three weeks before Christmas. It was a gift for my sons and as such I had a very specific time frame in which to receive it. So when I received a confirmation email stating the computer would be ready on February 16, 2000, I replied that I needed the computer much earlier. A service representative researched the delay and explained that the 400 megahertz Pentium chip I had ordered was particularly popular and backlogged as a result. Rather than leaving a customer dissatisfied, he suggested a way around the supply chain bottleneck. For an additional $50 I could upgrade my Pentium chip and receive the computer within a week. I readily agreed and the computer was received well before December 25th. As an end use customer, my needs had been met, and at a price that was reasonable to me. What did Dell do right? First their company had a system in place so that customer service representatives could readily access sales, marketing and supply chain information. This system allowed for my service representative to do far more than empathize with my problem. He was able to work with me within the company’s current supply chain limitations and ensure my satisfaction. How often have you gone to a store for a specific item only to be told that it will not be available for a week or more? Frequently that is the only assistance you will receive. You either purchase the product somewhere else or become frustrated with the delay. Either way you are less than satisfied with the store’s service. Through close relationships that facilitate information sharing at the system level, DSI allows companies to serve end users better. It empowers each member of the supply chain to develop immediate and appropriate solutions to problems as they arise. It requires that managers not only focus on their own goals, but also learn to look to the larger organization (including external supply chain members such as retailers and end users) as a whole. Goals must be agreed upon corporately and worked toward in unity. One key element of DSI is development of an integrated sales and operations planning (S&OP) process to facilitate systemic information sharing. This provides a formalized procedure to begin synthesizing a company’s operational plan with its demand plan. The operational plan consists of manufacturing, procurement, distribution, finance and related human resource plans. Operational plans include such items as monthly production schedules, extended contracts for raw materials with supply chain partners and any plans to expand manufacturing capacity internally and/or with partners. In the demand plan, sales and marketing determine what should be sold and marketed, and when (given the supply capabilities of the firm). Demand plans may involve suppressing demand for products or services that are capacity constrained, or shifting demand from low to high margin items. Once more, Dell serves as a model for effective creation and implementation of an S&OP process to facilitate DSI. In the fall of 2003, California dock worker’s organized a strike that brought imports into the largest West coast ports to a standstill. While most companies weather such supply chain disruptions by holding weeks (or even months) of domestic safety stock, Dell’s business model only provides for a few day’s supply of product on hand. Regardless, Dell needed to keep end-users happy. To continue providing product to its customers, Dell was left with only one option; they had to use expensive air freight to transport supplies from Asian vendors to the US. Company executives realized that one major constraint to this plan was the cost of transporting bulky cathode ray tube (CRT) computer monitors by air. Dell’s demand and supply managers created an alternative plan; they determined that they could “shape demand” by offering end users the opportunity to buy flat screen monitors for the same price as the older ones. It would still be costly to transport monitors by air, but the cost of moving the flat screens was much lower than that for the bulkier and heavier CRT monitors. Dell might still lose money on the deal, but their end users were significantly more satisfied with their “free” upgrades. Essentially, they changed the monitor market overnight, a development for which competitors’ supply chains were not prepared. This sort of dynamic solution is only possible when organizations embrace a business model that integrates demand and supply processes. While the Dell examples have been successes, incorporating DSI is not simple. There are many potential obstacles. The most common pitfall is misunderstanding the role of DSI within the organization. It should not be subject to company politics or artificial financial targets or quotas. Rather DSI should be used to establish organizational financial targets without preconceived ideas of the end result. Often this requires a reframing of corporate culture, a shift that only occurs with a significant investment of time and labor on the front end. In addition, DSI necessitates another company change: strong, effective customer integration. For that to occur, information must already flow easily between departments. A company must shift its focus from product and supply to customer and market. The transition is challenging, yet the ultimate value of DSI is undeniable. The Marketing and Logistics Department at the University of Tennessee has adopted the DSI model to frame research and curriculum initiatives. With both logistics and marketing integrated in the same department, as well as extensive connections to practitioners and academics across the nation and around the world, the structure of the department makes it an ideal trailblazer for this dynamic integration. The Department’s strategic plan envisions a continuation of its unique multidisciplinary approach, producing students ready to lead DSI changes within organizations and enabling faculty to research DSI and collaborate with practitioners who are already taking steps in that direction. About the Author: Dr. Stank’s business background includes sales and marketing experience at Abbott Laboratories Diagnostic Division. He served as a Surface Warfare Officer in the United States Navy prior to his industry and academic experience. He has performed consulting and executive education services for more than 40 manufacturing and logistics firms, including Dell, EDS, Kellogg’s, IBM, Norfolk Southern, Pepsi, Siemens, Sony, Textron, Wal*Mart and Whirlpool. He is an active member of the Council of Supply Chain Management Professionals, the Institute of Supply Management, and the American Society of Transportation and Logistics. Dr. Stank’s research focuses on the strategic implications and performance benefits associated with logistics and supply chain management best practices. He is author of more than 60 articles in academic and professional journals including Journal of Business Logistics, Journal of Operations Management, Management Science, and Supply Chain Management Review. He is also co-author of the book 21st Century Logistics: Making Supply Chain Integration a Reality, published by the Council of Logistics Management and co-editor of Handbook of Global Supply Chain Management, published by Sage publications.
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