How to manage last-minute variations in demand

Demand-Driven Manufacturing

The situation that has arisen in recent months has forced us to face a new market situation characterised by great uncertainty. We know that classical logic will not apply to demand volatility in the coming months and, depending on the evolution of the virus and the relative market, demand will be highly variable. It’s important to accept this variability and focus on the ability to adapt the supply chain according to the changes and elements that manufacturing companies can control. 

Becoming agile means organising a company to be able to intercept demand variation in time and increase the responsiveness of the entire supply chain. But what does that mean?

As already explained in the article 7 tips for improving the responsiveness of your extended supply chain during the Covid epidemic, companies now have several business levers available for improving demand-side responsiveness: for example, using distribution centres as a capacity buffer or using stock allocation tools based on cost/benefit analyses to prioritise channels, markets or one customer rather than another (based on the service lines to which they belong). 

The integration of planning and execution is becoming increasingly important, allowing manufacturing companies to equip themselves with tools that can improve responsiveness to last-minute variations in demand in terms of both production and purchasing. A key factor lies in a company’s ability to synchronise sourcing and manufacturing aspects: the first concerns the development and integrated management of supplier networks, the second the production network. Today many companies operate within global supply networks, including customers, suppliers and production plants in different countries, and this complicates the synchronisation of all the different actors. 

Demand-Driven Manufacturing is currently a watchword used to define the process in which production is driven primarily by confirmed customer orders, rather than sales forecasts. In this perspective, integrating the information coming from the demand of end consumers with that coming from factories and suppliers is essential in order to allow companies to dynamically manage the conversion between that which is planned, manufactured and re-planned.

Let’s take a look at a few steps for taking advantage of all the potential benefits:

  • Creating buffers for critical components: rethinking the strategic positioning of buffers, taking a more dynamic approach in defining safety stocks and resupply plans – considering factors such as orders in hand, forecasts, trends and market variability – is a first step in reducing the lead time for manufacturing the finished product and helping to react to demand variations more quickly.
  • Prioritising orders and finite-capacity planning: sorting euristics must make it possible to obtain an allocation sequence of productions (orders released and proposed) according to free parameters; ordering productions means assigning them a global priority according to different attributes such as date or delivery period, item/group priority, production leadtime, number of production alternatives, attributes related to the market/customer, certainty of deliveries, etc.
  • Reducing the frozen period (the period in which the factory schedule can no longer be modified): the more companies can reduce this period, the more they can improve flexibility, agility and responsiveness to their customers.
  • Labour interchangeability and rapid line redeployment: the possibility of switching from one production to another in a shorter period of time lets companies refocus on the most popular products and high sellers, reducing potential lost sales.
  • Factory progress visibility: the reliability and accuracy of information received from critical factories and suppliers helps provide a complete view of work progress (WIP).
  • Real integration with critical suppliers: the transparent exchange of upstream plans allows transferring consumer demand to the supply chain, with the possibility of defining strategic stocks for critical components with longer lead times.

The ultimate goal is to equip the company with levers that allow it to take appropriate countermeasures if changes in priority orders or in consumer purchasing forecasts arise, as well as delays in supply and production. 

Computer systems must ensure the coordination of material flows between network actors (for example by synchronising upstream phases and downstream processing to avoid unnecessary acceleration and the creation of unused stock). IT systems can be introduced in successive steps with more or less driven integration/automation levels according to contextual needs.

This requires adequate tools to manage demand, planning, scheduling and production and supplier control. They must all integrate with your company’s ERP system in order to obtain real value.

Here are some basic concepts of demand-driven architecture:

  • The demand management system integrates high-frequency orders/sales and regenerates a new forecast, even several times a day. 
  • The inventory management system allows dynamic management of buffers and replenishment plans.
  • The planning system filters out finite-capacity orders before launching the MRP – working on an 80-90% feasible plan is definitely better than feeding the scheduler with a production order portfolio generated with infinite capacity! 
  • The factory scheduler operates exclusively on the released orders generated by the MRP system: it has the objective of generating the short-term detailed plan considering constraints, optimisation rules and the real-time situation of production and suppliers.
  • The production progress system (MES) integrates real-time information on the status of orders, any delays and/or shortcomings, so as to allow synchronisation with the other levels, increasing visibility and the possibility of handling exceptions.
  • The supplier management system also allows having greater visibility of any delays and shortcomings of the same, with the ultimate goal of finding alternative ways to fulfil orders.

The interoperability of the different systems plays a central role in ensuring the sharing of information between departments inside and outside the company, as last-minute variations must be considered every day through cost-benefit analyses, and shared among the different actors and tools.

For more information contact us!