- The Idea Behind DSI
- How DSI Is Different from S&OP
- Signals that Demand and Supply Are Not Effectively Integrated
- The Ideal Picture of Demand Supply Integration
- DSI Across the Supply Chain
- Typical DSI Aberrations
- DSI Principles
- Critical Components of DSI
- Characteristics of Successful DSI Implementations
- DSI Summary
This chapter is from the book
This chapter is from the book
This chapter is from the book
Typical DSI Aberrations
The “ideal state” of DSI as depicted in both Figures 1-1 and 1-2 are just that—ideal states. Unfortunately, a variety of forces often result in actual practice being far removed from ideal practice. I have observed a variety of “aberrations” to the ideal states articulated earlier, and three are so common that they are worth noting.
The first, and perhaps most insidious, of these DSI aberrations is depicted in Figure 1-3. The figure is simplified to highlight the aberration, which is known as plan-driven forecasting. Previously in this chapter, I discussed the not-uncommon scenario where forecasted demand fails to reach the financial goals of the firm. In the ideal state of DSI, that financial goal is one of the inputs to the DSI process, where decisions are made about how demand (and if necessary, supply) should be enhanced to achieve the financial goals of the firm. In a plan-driven forecasting environment, however, the financial goal does not lead to the DSI process. Rather, it leads to the demand forecast. In other words, rather than engaging in a productive discussion about how to enhance demand, the message is sent to the demand planners that the “right answer” is to simply raise the forecast so that it corresponds to the financial goal. This message can be simple and direct—“raise the forecast by 10%”—or it can be subtle—“the demand planners know that their forecast had better show that we make our goals”—but either way, the plan-driven forecasting aberration is insidious because it results in a forecasting process that loses its integrity. If downstream users of the forecast—those who are making marketplace, supply chain, financial, and strategic decisions—know that the forecast is simply a restatement of the financial goals of the firm, and not an effort to predict real demand from customers, then those users will stop using the forecast to drive their decisions. I have observed two outcomes from plan-driven forecasting:
- Supply chain planners go ahead and manufacture products that correspond to the artificially inflated forecast; the result is excess, and potentially obsolete, inventory.
- The supply chain planners say to themselves, “I know darn well that this forecast is a made-up number and doesn’t represent reality. And since I own the inventory that will be generated by overproducing, I’m just going to ignore the forecast and do what I think makes sense.” Here, the result is misalignment with the demand side of the company.
Figure 1-3. Typical DSI aberration: plan-driven forecasting
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In both cases, plan-driven forecasting results in a culture where the process loses integrity, and forecast users stop believing what forecasters say.
Figure 1-4 shows the second DSI aberration, what I call DSI as a tactical process. In this scenario, the responsibility of the demand side of the enterprise is to come up with a demand forecast, which is then “tossed over the transom” to the supply side of the enterprise, which then either makes its plans based on the forecast, or not. Often, no DSI process really is in place—no scheduled meetings where demand-side representatives and supply-side representatives interact to discuss issues or constraints. When this aberration is in place, significant risk exists for major disconnects between sales and marketing and supply chain. Without the information-sharing forum that a robust DSI process provides, both sides of the enterprise usually develop a sense of distrust, neither understanding nor appreciating the constraints faced by the other. In addition to the siloed culture that results from this aberration, the lack of engagement from either senior leadership or finance makes this approach to DSI extremely tactical. Oftentimes, the forecasting and planning horizons are very short, and opportunities that might be available to grow the business might be sacrificed, because demand and supply are not examined from a strategic perspective. In this scenario, it is nearly impossible for DSI to be a process that “runs the business.” Instead, it is limited to a process that “runs the supply chain,” and engagement from sales and marketing leadership becomes very challenging.
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Figure 1-4. Typical DSI aberration: DSI as a tactical process
Figure 1-5 shows the final common aberration to the ideal state of DSI: lack of alignment with sales and marketing. In this situation, little, if any, communication gets back to the demand side of the enterprise concerning the decisions made in the DSI process. This aberration is most problematic when capacity constraints are in force, resulting in product shortages or allocations. Recall the scenario described at the beginning of this chapter, where the sales organization at the apparel company was incentivized to sign up new accounts, while production problems were affecting deliveries to the firm’s largest, most important current customer. As previously illustrated, the discussions that occur in the DSI process often revolve around what actions should be taken when demand is greater than supply. However, if no effective feedback loop exists that communicates these decisions back to the sales and marketing teams, then execution is not aligned with strategy, and bad outcomes often occur.
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Figure 1-5. Typical DSI aberration: lack of alignment with sales and marketing
The aberrations described here are examples of typical problems faced by companies when their DSI processes are not executed properly. Aberrations like these often exist, even when the formal process design is one where these aberrations would be avoided. However, siloed cultures, misaligned reward systems, lack of training, and inadequate information systems can all conspire to undermine these process designs. The reader is encouraged to look carefully at Figure 1-1, which represents the ideal state of DSI, and carefully think through each of the input and output arrows shown in the figure. Wherever an arrow is missing, or pointed at the wrong place, an aberration occurs. Identifying gaps in the process is the first step to process improvement.