What is Demand Driven and how can it be applied in the Supply Chain?

3 minutes to read

Traditionally, supply chains organize their inventory using demand forecast based on sales history.

However, to avoid excess or lack of stock, the ideal is that the forecast demand is as real as possible, which thanks to current technologies has become viable.

This method is known as Demand Driven and in this article we will explain what it is and how it works in the supply chain. Read on and learn more!

What is Demand Driven?

As mentioned in the introduction to this article, companies often start producing their products to anticipate future demand.

For this, they consider the sales history to forecast demand.

The problem with this approach is that noise in information sharing can cause stockouts (shortfalls) or excess in stock, an event known as the whiplash effect.

Therefore, the ideal is for production and stock to be planned according to real demand, which is the proposal of Demand Driven, based on information sharing.

This approach has been made possible by technologies such as: IoT, Big Data, XML and 3D printing that facilitate the flow of information, reduce costs and reduce transport distance.

How does Demand Driven apply in the supply chain?

The Supply Chain run by Demand Driven is able to respond to demand through technology that provides efficient data management.

But for this approach to flow as expected, some elements need to be implemented by companies opting for this system. They are:

. Collaboration and connectivity of information between suppliers, intermediaries and the final consumer.

. Frequency and more detailed data that assist in the analysis and agility of the obtained information.

. Fast and flexible responses: if a sudden change in production is needed, in greater or lesser quantity, the company must be able to do so.

In addition to these factors, Demand Driven requires companies to be able to replan themselves quickly in the face of sudden changes in demand.

Advantages of Demand Driven in the Supply Chain

With the agility in response to demand, we can mention as important factors that result from Demand Driven:

. Inventory Reduction: Studies estimate that Demand Driven can reduce inventory by 7-15%;

. Increased sales and revenue;

. Improved supply chain visibility;

. Improved collaboration across the entire supply chain;

. Increase in the quality of customer service, due to the flexibility in the capacity to fulfill a greater or lesser number of orders;

. Better market positioning;

. Accurate demand forecast.

Limited data and strategies

The demand-driven approach has proven to be more efficient in responding to the market, with more agility, accuracy, collaboration and inventory balance.

However, there is a challenge in the adoption of technologies that still require a high investment and are not always accessible to all companies, but which are essential.

Either way, it is worth considering the advantages of Demand Driven that match the needs of the modern market and are capable of leveraging the supply chain.

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