demand chain management

DEMAND-CHAIN DEMAND-CHAIN MANAGEMENTMANAGEMENT

PRESENTED BY:-PRESENTED BY:- BHUBNESHWAR PANDAYA BHUBNESHWAR PANDAYA

Critical questionsCritical questions

• What is Demand Chain What is Demand Chain Management?Management?

• How does it differ from traditional How does it differ from traditional Supply Chain Management?Supply Chain Management?

• Who does Demand Chain Who does Demand Chain Management Impact?Management Impact?

• How does it improve the How does it improve the procurement and payment procurement and payment processes?processes?

• Why the shift?Why the shift?

What is Demand Chain What is Demand Chain Management?Management?

• According to D. Ericsson D.C.M. is a natural next According to D. Ericsson D.C.M. is a natural next step in the evolution of the Supply Chain step in the evolution of the Supply Chain Management concept based on the necessity for Management concept based on the necessity for adaption to changing external and internal adaption to changing external and internal conditions and the availability of new tools.conditions and the availability of new tools.

• Demand Chain Management is a shift in Demand Chain Management is a shift in procurement strategy from a stance of reactive to procurement strategy from a stance of reactive to proactive.proactive.

• It is a shift from processing paperwork to It is a shift from processing paperwork to proactively negotiating strategic agreements on proactively negotiating strategic agreements on behalf of the organization in anticipation of needs behalf of the organization in anticipation of needs based on feedback from users, historic data, based on feedback from users, historic data, organizational data.organizational data.

• It is about developing strong working relationships It is about developing strong working relationships with end users, Logistics staff, Accounts Payable with end users, Logistics staff, Accounts Payable staff, and Suppliers to ensure that organizational staff, and Suppliers to ensure that organizational needs are met on a cost effective, timely basis.needs are met on a cost effective, timely basis.

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It involvesIt involves• Customer relationship managementCustomer relationship management• Extended supply chain managementExtended supply chain management

Philosophy ShiftPhilosophy Shift

• Demand Chain Management is about Demand Chain Management is about breaking down the barriers via a breaking down the barriers via a philosophy shift from a “silo” driven, philosophy shift from a “silo” driven, territorial, “not my department” territorial, “not my department” approach to one of a holistic, approach to one of a holistic, strategic, solution driven philosophy.strategic, solution driven philosophy.

• How is this achieved?.......Through How is this achieved?.......Through partnerships. It is all about garnering partnerships. It is all about garnering trust, following through, and being trust, following through, and being creative in breaking down existing creative in breaking down existing barriers. barriers.

How is this achieved?How is this achieved?• Get out there!Get out there! Go visit your users and the individuals Go visit your users and the individuals

you are buying for. See their work environment, the you are buying for. See their work environment, the limitations they face, meet with them regularly to limitations they face, meet with them regularly to follow up on issues, resolution, future needs.follow up on issues, resolution, future needs.

• Listen.Listen. Your users and partner areas such as Your users and partner areas such as Accounts Payable, Central Distribution, Warehousing, Accounts Payable, Central Distribution, Warehousing, as well as Suppliers can provide you with a wealth of as well as Suppliers can provide you with a wealth of information, if you let them.information, if you let them.

• Be creative.Be creative. Look for creative, strategic solutions to Look for creative, strategic solutions to potential problems, talk with the users and get potential problems, talk with the users and get feedback, think outside of the norm. Don’t be afraid to feedback, think outside of the norm. Don’t be afraid to do things differently than they have always been done.do things differently than they have always been done.

• Partner and NetworkPartner and Network with your end users, your with your end users, your counterparts in Accounts Payable, Central counterparts in Accounts Payable, Central Distribution, Warehousing and in your supply network, Distribution, Warehousing and in your supply network, build relationships based upon mutual understandings build relationships based upon mutual understandings and common goals.and common goals.

Demand Chain Demand Chain Management v. Supply Management v. Supply

Chain ManagementChain Management• The primary difference between demand chain The primary difference between demand chain management and supply chain management is management and supply chain management is the driver. The focus is moved from a the driver. The focus is moved from a transactional approach to a strategic approach.transactional approach to a strategic approach.

• Rather than being in a reactive mode of Rather than being in a reactive mode of responding to a request, Demand Chain responding to a request, Demand Chain Management is about working with people Management is about working with people upstream and downstream to find the best upstream and downstream to find the best means for meeting the organization’s needs on a means for meeting the organization’s needs on a strategic basis. strategic basis.

• Demand Chain Management is all about Demand Chain Management is all about collaboration and information sharing, which is collaboration and information sharing, which is often not easy in today’s world where people are often not easy in today’s world where people are often expected to produce optimal results with often expected to produce optimal results with limited resources.limited resources.

• Demand Chain Management often results in Demand Chain Management often results in process and cost savings to the organization as process and cost savings to the organization as well as improved relations across units. well as improved relations across units.

Who does Demand Chain Who does Demand Chain Management Impact?Management Impact?

• Typically everyone along the Typically everyone along the procurement/distribution/payment continuum.procurement/distribution/payment continuum.

• Ideally the impact is positive for all parties and can Ideally the impact is positive for all parties and can include: greater understanding of organizational include: greater understanding of organizational needs, a better process for the user, buyer, supplier, needs, a better process for the user, buyer, supplier, accounts payable staff; improved communication and accounts payable staff; improved communication and improved responsiveness. All of this should result in improved responsiveness. All of this should result in reduced costs to the organization.reduced costs to the organization.


• For the UserFor the User, they have the benefit of a , they have the benefit of a Procurement specialist who is intimately familiar Procurement specialist who is intimately familiar with their needs and their organization who can with their needs and their organization who can negotiate a better contract on their behalf.negotiate a better contract on their behalf.

• For The Procurement IndividualFor The Procurement Individual, it results in a , it results in a reduction in transactional business and allows them reduction in transactional business and allows them time to develop better contracts, to improve on time to develop better contracts, to improve on existing contracts, and is a shift from processing existing contracts, and is a shift from processing purchase orders to managing their resultant purchase orders to managing their resultant strategic contracts on behalf of the organization.strategic contracts on behalf of the organization.

• For the SupplierFor the Supplier, it increases their ability to meet , it increases their ability to meet their contractual requirements as the increased their contractual requirements as the increased communication both upstream and downstream communication both upstream and downstream should result in clearer product specifications, a should result in clearer product specifications, a clearer understanding of performance clearer understanding of performance requirements, and in many cases a shorter payment requirements, and in many cases a shorter payment cycle.cycle.


• For Warehousing, Distribution and Logistics staffFor Warehousing, Distribution and Logistics staff, , depending upon the contract it can result in an increased depending upon the contract it can result in an increased need for warehousing and logistics management or a need for warehousing and logistics management or a reduced need as in the case of direct-delivery contracts.reduced need as in the case of direct-delivery contracts.

• For Accounts Payable IndividualsFor Accounts Payable Individuals, it can result in , it can result in improved methods for payment such as consolidated improved methods for payment such as consolidated monthly billing thus reducing the number of invoices monthly billing thus reducing the number of invoices handled monthly; an evaluated receipts process where the handled monthly; an evaluated receipts process where the signed, received packing slip serves a dual function as signed, received packing slip serves a dual function as both the proof of delivery and is a means for issuing both the proof of delivery and is a means for issuing payment thus reducing the number of incoming invoices payment thus reducing the number of incoming invoices and streamlining the payment process; or a sub-voucher and streamlining the payment process; or a sub-voucher process for automated payments that are a regular process for automated payments that are a regular amount, issued regularly over the course of the contract; amount, issued regularly over the course of the contract; ACH/EFT payments; procurement card utilization.ACH/EFT payments; procurement card utilization.

Why Make the Shift?Why Make the Shift?

• Shrinking resources in today’s economy Shrinking resources in today’s economy makes collaboration and knowledge makes collaboration and knowledge sharing a necessity.sharing a necessity.

• We live in a world that is more complex We live in a world that is more complex than in the past by merit of the new than in the past by merit of the new global economy.global economy.

• Savings to be gained: measured in both Savings to be gained: measured in both bid/negotiated savings and in efficiencies bid/negotiated savings and in efficiencies or process savings.or process savings.

• ……………………………………………………………………It just makes It just makes sense.sense.

Demand Chain Process Demand Chain Process ImprovementsImprovements

• ““Sub Vouchers”:Sub Vouchers”: this is a payment process in which this is a payment process in which the supplier is paid a consistent amount on a regular the supplier is paid a consistent amount on a regular basis over the life of the contract. basis over the life of the contract.

• Trigger:Trigger: same amount invoiced monthly same amount invoiced monthly• Action:Action: the system is set up so that payment is the system is set up so that payment is

automatically issued on a monthly basis for the automatically issued on a monthly basis for the agreed upon amount. Works well for property agreed upon amount. Works well for property leases, equipment rentals, equipment leases. Any leases, equipment rentals, equipment leases. Any situation where the amount paid is always the same situation where the amount paid is always the same over the life of the contract. over the life of the contract.

• Result:Result: the system automatically generates the the system automatically generates the payment without additional intervention other than payment without additional intervention other than either distribution of charges or reconciliation on the either distribution of charges or reconciliation on the back end. Payment occurs with minimal use of back end. Payment occurs with minimal use of resources and on-time.resources and on-time.

• Involved Parties:Involved Parties: User unit, Purchasing, Accounts User unit, Purchasing, Accounts Payable, Supplier, SystemsPayable, Supplier, Systems

Sub-Voucher ProcessSub-Voucher Process

COMPETITIVE COMPETITIVE ADVANTAGEADVANTAGE

Companies have to deal with three Companies have to deal with three condisions:condisions:

• Alignment ( create shared Alignment ( create shared incentives)incentives)

• Agility (respond quickly to short –Agility (respond quickly to short –term change)term change)

• Adaptability (adjust design of supply Adaptability (adjust design of supply chain)chain)


• Evaluated Receipts:Evaluated Receipts: a system in which a supplier is paid a system in which a supplier is paid based on submittal of a signed, received packing slip and based on submittal of a signed, received packing slip and existing contract with line item pricing.existing contract with line item pricing.

• Trigger:Trigger: contract with line item pricing and repetitive contract with line item pricing and repetitive purchasespurchases

• Action:Action: the staff receive the goods into the system, the the staff receive the goods into the system, the system is set up to prompt generation of payment based on system is set up to prompt generation of payment based on what was received at the contracted price and payment is what was received at the contracted price and payment is issued directly based on receiving with no invoice issued directly based on receiving with no invoice generation by the supplier and minimal accounts payable generation by the supplier and minimal accounts payable interaction.interaction.

• Result:Result: use of fewer resources resulting from reduced use of fewer resources resulting from reduced invoice generation for the supplier and invoice handling by invoice generation for the supplier and invoice handling by Accounts Payable. Payment is issued for what is received Accounts Payable. Payment is issued for what is received and the contracted price is always paid, ensuring and the contracted price is always paid, ensuring overpayment does not occur. With technology the process overpayment does not occur. With technology the process can be as automated as the buyer would like.can be as automated as the buyer would like.

• Involved Parties:Involved Parties: Supplier, Receiving, Accounts Payable, Supplier, Receiving, Accounts Payable, Purchasing, SystemsPurchasing, Systems

Evaluated ReceiptsEvaluated Receipts


• Consolidated Monthly Billing:Consolidated Monthly Billing: rather than individual rather than individual invoices, the supplier submits either electronically or in hard invoices, the supplier submits either electronically or in hard copy a monthly consolidated invoice of all activity.copy a monthly consolidated invoice of all activity.

• Trigger:Trigger: contracted pricing, high activity level, multiple delivery contracted pricing, high activity level, multiple delivery addresses, multiple ordering entities under a single contract.addresses, multiple ordering entities under a single contract.

• Action: Action: the contracted pricing is loaded into the system or the contracted pricing is loaded into the system or maintained in a database where it can be extracted from or “hit maintained in a database where it can be extracted from or “hit up against” when invoicing is submitted. The supplier is up against” when invoicing is submitted. The supplier is required to submit pricing in a designated format that contains required to submit pricing in a designated format that contains all of the necessary data to confirm pricing and delivery. A all of the necessary data to confirm pricing and delivery. A consolidated invoice is submitted by the supplier once monthly consolidated invoice is submitted by the supplier once monthly and audited against contracted pricing. Payment is made and audited against contracted pricing. Payment is made monthly based on the result of the invoice audit (this can be a monthly based on the result of the invoice audit (this can be a manual process or automated).manual process or automated).

• Result: Result: significant reduction in invoice volume resulting in significant reduction in invoice volume resulting in better use of resources, process can be automated for verifying better use of resources, process can be automated for verifying pricing.pricing.

• Involved Parties: Involved Parties: Accounts Payable, Systems, Purchasing, Accounts Payable, Systems, Purchasing, SupplierSupplier

Consolidated Monthly Consolidated Monthly Summary BillingSummary Billing


• ACH/EFT Payments/Wire Transfers:ACH/EFT Payments/Wire Transfers: these are automated these are automated on-line payments made directly to the supplier’s bank account.on-line payments made directly to the supplier’s bank account.

• Trigger: Trigger: contract that requires automated payment to the contract that requires automated payment to the supplier or where wire transfer is required. Works well for supplier or where wire transfer is required. Works well for international transactions.international transactions.

• Action: Action: when purchase order is set up the payment when purchase order is set up the payment mechanism must be identified as ACH or Wire Transfer and mechanism must be identified as ACH or Wire Transfer and the appropriate banking information must be identified for the appropriate banking information must be identified for Accounts Payable. Upon receipt of an invoice, Accounts Accounts Payable. Upon receipt of an invoice, Accounts Payable sets up the payment to occur via ACH or wire transfer Payable sets up the payment to occur via ACH or wire transfer according to current banking rules for processing of E-according to current banking rules for processing of E-commerce Payments or Business to Business Transactions.commerce Payments or Business to Business Transactions.

• Result: Result: payment occurs more rapidly, can be readily payment occurs more rapidly, can be readily identified by the supplier. For items requiring pre-payment identified by the supplier. For items requiring pre-payment this can often work well as an efficient means for payment. this can often work well as an efficient means for payment. For international purchases it is an excellent choice as the For international purchases it is an excellent choice as the payment can be verified as received by both the originator and payment can be verified as received by both the originator and receiver.receiver.

• Involved Parties: Involved Parties: Purchasing, Accounts Payable, Systems, Purchasing, Accounts Payable, Systems, Banking Institution and possibly other financial departments Banking Institution and possibly other financial departments in the organization.in the organization.

ACH paymentsACH payments


• Alignment with key units to provide Alignment with key units to provide higher level of servicehigher level of service

• Contracting efforts should be aligned with Contracting efforts should be aligned with user needs and over-arching user needs and over-arching organizational needsorganizational needs

• Procurement efforts should be structured Procurement efforts should be structured in such a way that the results include in such a way that the results include measureable improvements in process or measureable improvements in process or pricingpricing

Procurement related ImprovementsProcurement related Improvements

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Questions & AnswersQuestions & Answers

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