VideoBusinesses with demand-driven supply networks get paid 70 days sooner and bring new products to market 70 percent faster than their less-enlightened rivals, says AMR. The consultancy (which advises corporate customers on creating such networks) also found that companies with a demand-driven approach to production have a 92 percent perfect-order rate, as opposed to 81 percent for their competitors. Overall, companies with a demand-centric — as opposed to factory-centric — bent are adding 5 percent to their top lines.
To some, the message is clear. Declares Carol Ptak, vice president and global industry executive at PeopleSoft: "Companies that don't make the change to demand-driven manufacturing and demand-driven supply chains will die."
Executives at Russ Berrie & Co. would no doubt concur. Until a few years ago, the Oakland, New Jersey-based maker of specialty gifts manufactured its line of stuffed animals and scented candles based on historical trends. Says Michael Saunders, the company's chief information officer and vice president of business processes: "We'd guess that a major retailer would need 1,000 green bears and 2,000 red bears. Then we'd make them and ship them."
But the nature of the business began to change. Suddenly, some of the company's 50,000 retailers wanted faster turnaround on orders. One major grocery chain requested that Russ Berrie start delivering its products directly to stores rather than to the customer's distribution centers. What's more, the customer also wanted Russ Berrie to quickly respond to changing buying habits in each store.
To cope with this new order for orders, Russ Berrie management decided in 2002 to completely overhaul the company's legacy-information systems. The initiative included consolidating seven enterprise resource planning (ERP) programs into one centralized system. Managers now receive weekly replenishment information based on POS information from the grocery-store operator. Russ Berrie also deployed a model-stocking method at the individual-store level, and the data from that program funnels back into the company's demand-planning systems. Eventually, purchase orders from individual stores will tie into systems in suppliers' factories. Right now, though, managers at Russ Berrie are pleased with the company's progress. Says Saunders: "We're reacting to purchase orders now."
Out of Joint
Viewing real-time purchase orders can be a huge change for some managers. Consider the case of National Instruments Corp., an Austin, Texas-based maker of high-end measuring devices. The $500 million (in revenues) company has managed, over time, to cobble together a product-delivery system that's based on the Oracle 11 I platform. Real-time sales information, says CFO Alec Davern, is pulled from the Oracle ERP program into a data warehouse, built by Cognos. Of note, nearly all of National Instruments's suppliers are connected to the company's global ERP program. "We know instantly when we take an order in China that the order will get booked and will create a purchase order with suppliers," says Davern.
The arrangement seems to be working. In October, 99.5 percent of the company's shipments reached customers on time — impressive, considering that no account makes up more than 1 percent of National Instruments's sales. To make sure supplies dovetail with buying patterns, Davern continually monitors a host of inbound-demand indicators on a dashboard on his PC — a setup that would be impossible without the unified data platform and data cube. Every day, the finance chief also looks at a Web-based report detailing order backlogs by country. That allows him to see inbound demand all the way to order entry, purchasing, and planning.
This kind of transparency is hard to attain with disconnected transactional systems. At Russ Berrie, consolidating the ERP systems has made it much easier for managers to see what orders are coming in, and how those orders match up to what's being produced by outsourcers. That, in turn, is enabling the company to reroute its stuffed bears and scented candles while the goods are still in transit. "We still have to put something on a boat and wait 30 days," concedes Saunders. "But at least now we know what's on the boat, and which customer will be getting it when it comes off the boat."
Of course, some customers can't wait 30 days. Management at Memphis-based Smith & Nephew Orthopaedics, which began digitizing its product-replenishment process two years ago, has dramatically improved its ability to respond to customer demands. In fact, the company has reduced the turnaround time on one set of medical-implants instruments from six months to two days. Part of that improvement, says vice president of finance Mike O'Connor, has come from better use of technology. Sales personnel, for instance, scan product information into a handheld device as soon as a surgical procedure is completed. The data is then uploaded into the company's internal purchase-order system.
While speed is important in the medical-implants business, so too is accuracy, says O'Connor. "A doctor can't open one of our tool kits and go, 'Oops, we've got the wrong hip replacement. Come back tomorrow.' "
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