Sales and Operations Planning: Reconciling Supply With Demand
Thursday March 11, 2004
Sarah Rosen, John Fontanella

The Demand-Driven Supply Network (DDSN) puts the customer into the supply chain.  And toward that end, event-based Sales and Operations Planning (S&OP) stands out as the critical component of a strategy that reconciles supply with demand.  

The Bottom Line:  Companies want their Supply Chain Management (SCM) systems to adapt to their heightened expectations as real-time demand data and operations planning converge to offer a more reliable system for forecasting demand.  This will then result in increased service and decreased inventory costs.

What It Means: There is no lack of data from the marketplace from which demand can be derived.  The issue that most companies face is converting the data into a credible demand signal that is reliable enough to guide a company's production scheduling and finished goods inventory management plan. 

Case Study: The Hartz Mountain Corporation, a manufacturer of pet care products, was looking for a system that would allow it to keep fill rates high while cutting inventory costs by 25%.  So the Wal-Mart supplier looked for software that would integrate Point-of-Sale (POS) data into its forecast planning to create a credible demand signal.

Hartz looked to Blue Agave to help with its vision of a near perfect, “sell-one-make-one” enterprise model, implementing Blue Agave's ActiveDemand and ActiveCustomer products.  By monitoring Wal-Mart's Retail Link information and using Blue Agave's software to derive the activity of its products, Hartz was able to track product movements to monitor sell-through and determine actual demand and product availability.  Wal-Mart, which maintains a three-day order cycle, was able to alert Hartz within the first three hours of the cycle if demand was going to exceed existing supply. 

Benefits:

• Hartz enjoyed an upswing in revenue because it could fill orders that were previously lost because of a lack of product.
• Hartz hit its goal, slashing inventory 25% by eliminating the safety stock it used to need to balance untrustworthy demand indicators.

Conclusion:  By considering the real-time movement of products instead of a traditional demand plan, companies are beginning to close the gap between supply and demand.  By looking at actual product movement, they are able to eliminate the distortion and delayed responsiveness of traditional demand plans.

Source: AMR Research, Inc. copyrighted information.