CPG
Volatility: An Enemy of
Consumer Product
Companies and Their
Supply Chains
Volatility is a huge factor for
business today. From the stock
market to local economies,
these volatile times impact
world events and play havoc
on supply chains. Companies
that do not learn to manage
the volatility of their supply
chains will continue to be at
the mercy of external influences.
—Bruce Tompkins, executive director,
Tompkins Supply Chain Consortium
ariation and constant disruption remain the enemies of effi-
cient and effective supply chains. So, how do companies
deal with this level of volatility and turn it into a competi-
tive weapon?
One of the most effective ways to minimize the influence of volatility on
supply chains is to become demand-driven. This means that a single sales
forecast is used throughout the entire supply chain. The single sales forecast
is used to compute order forecasts over the appropriate time horizons for all
links in the supply chain. The driving force behind demand-driven supply
chains is that it has real customer demand as its basis.
Companies mistakenly believe that they are demand-driven if they forecast well, have a pull system in place, or collaborate with their customers and
suppliers. While all of these actions are necessary and beneficial, success in
the future volatile market will require more. Companies will need to track
and respond to changes up and down the supply chain from customers’ customers to suppliers’ suppliers. This will require use of the right tools to capture changes and manipulate the data to leverage the information. Good
decisions can then be made in shorter time frames with respect to the movement of inventory and the production of products to meet the shifting needs
of the market.
Companies will also be required to accommodate all the different flows
that make up their supply chains. Only a few companies have the luxury of
only managing a single flow or supply chain. Most have multiple product
flows and must manage each differently from one another. Therefore, consideration must be given to product that is best cross-docked or product that
is most economically sent direct to stores. Each of these flows must be
understood and operated with demand-driven information and sound decision making capabilities
V
The Outlook
In 2012, the notion of demand-driven supply chains as a solution to volatility
will become a top priority for many companies that are operating numerous
supply chains. The effectiveness of the concepts of demand-driven supply
chains is directly proportional to the ability to implement processes and technologies to support the concepts. But if this was so easy, everyone would
already be doing it.
