How to Optimize Demand Chain Management

Tags: Distribution, Lean, Logistics, Technology , Supply Chain

In a perfect world, distribution centers (DCs) would disappear. Retailers and manufacturers would match incoming orders to customer demand so precisely that all products would stay in motion all the time. At most, an importer would operate a crossdock to process incoming goods for the outbound trip.

This super-lean scenario poses major opportunities to reduce expenses. When you're not storing product in a warehouse, you don't carry the cost of that product on your books. You don't have to buy or lease a building to store that product, or hire employees to put product away and then, later, pick and ship it. It also reduces risk and future costs because there is less chance of being stuck holding unsellable goods.

Entirely eliminating DCs is difficult, of course, and for some companies it may prove impossible. Still, the opportunity to drastically reduce a DC footprint and the associated costs is significant, and some companies may even be able to eliminate DCs completely. Under the demand chain model, the shipper replaces safety stock with information. That means not only a more accurate forecast, but also end-to-end visibility into the progress of every line item on every purchase order you issue. This visibility isolates issues and the events that caused them every time a problem occurs. It then enables you to make alternative plans and implement corrective actions to prevent that issue from occurring again.

For example, if you learn that a vendor is late in producing one of your items, you can change your shipping plans for that item, moving it to a different container, due to ship two weeks from now. Instead of delaying an entire shipment, the vendor's problem will affect just one line item.

Or if you need that item quickly, you might schedule it to travel as air cargo. Either way, because you detect the problem early, you have time to prevent numerous consequences downstream. Visibility—and the time it buys you—eliminates waste and can save you a great deal of money.