May 17, 2009 | Demand chains
Coordination and Control are the key words in managing demand chains, and an orchestra is a great metaphor for a demand chain.
To work effectively a chain needs control in the sense of a conductor in an orchestra, who dictates the interpretation of a piece of music, and then co-ordinates the detailed contribution of the players.
The individual players need the detailed performance information about the mechanics of their contribution contained in the music, and a clear and unambiguous understanding of their role in the production of the complete sound of the orchestra from the conductor, including a clear understanding of the consequences on the whole, of a failure to perform to the agreed standard by them.
Without both types of information, the detail of the individual actions, and the understanding of how those actions fit into and enhances the whole, there is no possibility of an optimum outcome.
May 10, 2009 | Demand chains
Over many years of being involved in the evolution of demand chains, there appears to be a number of stages through which they evolve. It is almost always iterative, often with many false starts and dead ends, but those that persist, display the following stages:
- Catalyst. At some point, someone yells, “There must be a better way!”. Generally this happens in tough times, about now would be appropriate.
- Pre-chain. This occurs as a few look around at the data, and wider commercial environment trying to identify a better way for them. Most do not go beyond this investigation, as it now starts to get hard.
- Cautious first steps. Generally a relatively simple collaboration centered around something they all use or need, such as carton, transport or service supply, that is essentially non competitive.
- Commitment to a chain as a competitive differentiator. Key here is to collaborate using information that in less enlightened times would have been seen as proprietary.
- Evolution to a demand chain. This takes time, commitment and is a journey with no end, just an evolving chain that continually improves its ability to react to short term changes in consumer demand, as well as being sufficiently adaptable to evolve its business model to accommodate evolution in the commercial environment. Examples of true demand chains are few and far between. Dell computers lauded “build to order” business model is the best known example of a large business that acts as a manager of a demand chain. It is one of the many models around, largely housed in small businesses where the strains of dumping the status quo are more easily managed.
May 6, 2009 | Demand chains
The uneven distribution of power in a supply chain is the norm. To move beyond simple supply to a value chain, or further to a demand chain, the decision making power needs to be distributed more evenly through the chain via collaborative mechanisms.
The ultimate collaborative mechanism is transparency of information, which puts decision making at the point where it adds most value to the operator at that point in the chain, as well as maximising the value to the whole chain, particularly to the end consumer. It removes the pricing power that accumulates with information at points of arbitrage in a chain.
May 6, 2009 | Demand chains
Two weeks ago, on coming to an agreement with a new client, sealed with a handshake, I indicated I would send him a letter that outlined our agreement. Pretty standard practice in my industry, but his response surprised me.
He asked ” do we need our agreement in writing because you do not trust me, or is it because you do not warrant my trust?”
Recovering from that was interesting, and it remined me that trust, emerging from the behaviour of the parties, is the basis of all successful demand chains.
Contracts codify expected behavior, and specify what is allowed, and what is not. By inference, if it is not stated as being banned, it is OK, and vice versa.
What does that do to the very basis of successful and mutually beneficial relationships: trust?
If you cannot trust someone, having a contract will not change that, it just outlines the basis on which the sanctions will be applied.
Apr 28, 2009 | Demand chains
Trust is often cited as the key in making relationships, personal or commercial work. What is sometimes poorly understood is that trust is an outcome of lots of other things, primary amongst them is truth, along with consideration of the others point of view, meeting others needs, and compatibility of objectives, to name just a few.
In relationships between businesses, there is the added complication that there are usually many people involved, and as businesses are inanimate, it comes down to the behavior of people.
Just as most of us were told as kids, telling the truth is sometimes difficult, but it is far easier than the alternative, and has lasting effects on the relationship.
Apr 24, 2009 | Demand chains, Marketing
The usual, and correct view of a supply chain is a number of competitors at each point in the chain competing to provide the goods and services necessary to send the goods along to the next stage. The classic is the Australian wool chain, where the agents compete to broker the wool, the scourers compete amongst themselves, as do the top-makers, weavers, and so on. This all takes a lot of time and energy, competing horizontally.
Well developed demand chains by contrast compete vertically. They are driven by demand, and each point in the chain works collaboratively with the others to best meet the customers need. Slowly, the competitive environment is altering, and competition at the point of sale is becoming a competition between competing supply chains, not just competing retailers.
The benefits of this type of activity are potentially huge.
Wool Connect, a group of wool producers has its wool in shops as socks after a couple of months, rather than a couple of years as would be the norm, and they know where the wool goes, and they get a premium for a premium product.
www.woolconnect.com
