Demand Management: Integrating Demand and Supply in Real Time A Symposium by the MIT Center for Transportation & Logistics Cambridge, Massachusetts September 22-23, 2004 This report was prepared October 2004 by Andrea and Dana Meyer of Working Knowledge® [email protected] for the Center for Transportation & Logistics (CTL), and edited by Larry Lapide and James B. Rice, Jr. of CTL. Please contact Jim Rice ([email protected] or 617.258.8584) if you have any questions or if you would like to discuss this report. Table of Contents Background...................................................................................................................................................1 Executive Summary ......................................................................................................................................2 Themes..........................................................................................................................................................3 1. The Gap between Supply and Demand................................................................................................3 Out of Stock ....................................................................................................................................................3 Overstocks.......................................................................................................................................................3 Low Margins ...................................................................................................................................................3 2. Causes of the Gap ................................................................................................................................4 Biased and Rogue Forecasts............................................................................................................................4 An Incentive to Cause Problems .....................................................................................................................4 Process Gaps ...................................................................................................................................................4 Barriers to Improvement .................................................................................................................................5 3. Data Sources ........................................................................................................................................5 Getting Data from the Point of Consumption .................................................................................................5 Challenge: Latency..........................................................................................................................................6 Challenge: Executive Overreaction.................................................................................................................6 4. Bridging Supply and Demand..............................................................................................................7 Sales & Operations Planning (S&OP) ............................................................................................................7 Exceptions are the Rule...................................................................................................................................7 From Rearview Mirror to Front Windshield ...................................................................................................8 S&OP Pre-Meetings........................................................................................................................................8 The ABCs of Bridging ....................................................................................................................................8 Challenge: Participation ..................................................................................................................................8 Demand Steering.............................................................................................................................................9 5. Different Industries, Different Problems..............................................................................................9 Stock the Shelf or Lose the Sale......................................................................................................................9 Supply Constraints and Phantom Orders.........................................................................................................9 Seasonality ......................................................................................................................................................9 Product Transitions .......................................................................................................................................10 Large & Complex vs. Small & Independent Customers ...............................................................................10 Outsourced Manufacturing............................................................................................................................10 Project-Oriented Supply Chains....................................................................................................................11 6. Future Alternative: Internal Markets..................................................................................................11 Internal Markets for Bridging Supply and Demand......................................................................................11 Internal Markets for Corporate Directives and Goals ...................................................................................12 Prediction Markets ........................................................................................................................................12 Speculators ....................................................................................................................................................13 Internal Markets as Data Sources..................................................................................................................13 The Downsides of Markets ...........................................................................................................................14 Perfection? ....................................................................................................................................................14 Demand Management Research Opportunities...........................................................................................14 Appendix: Presentation Summaries............................................................................................................16 1. Introduction, Dr. Larry Lapide, Research Director, CTL, MIT.........................................................16 2. Achieving Perfect Retail, Bill O’Connor, Director, Center of Expertise, The Gillette Co................16 Key Performance Indicators..........................................................................................................................16 Global Value Chain.......................................................................................................................................17 Connecting to the Customer..........................................................................................................................17 Developing Expertise....................................................................................................................................17 3. The S&OP Journey: A Relentless Pursuit of the Truth, Mike Mastroianni, VP, North America Planning & Operations, Campbell Soup Company ............................................................................18 S&OP Initiatives ...........................................................................................................................................18 S&OP Behaviors ...........................................................................................................................................18 Common Misconceptions about S&OP ........................................................................................................19 Five Steps of the S&OP Process ...................................................................................................................19 Conclusions...................................................................................................................................................19 4. Reducing Complexity and Creating Value via Sales and Operations Planning, Seema Phull, Director, Process & Technology, Enterasys Networks.......................................................................20 Re-engineering the S&OP Process................................................................................................................20 Collaborative Forecasting and Demand Planning .........................................................................................21 Results of the New CFDP Process ................................................................................................................21 5. Recap of the Day, Dr. Larry Lapide, Research Director, CTL, MIT.................................................22 6. Symphony – Steering the Business Real-Time, Tony Saldanha, Manager, Global Business Services, The Procter & Gamble Company .......................................................................................................22