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From: Food Quality & Safety magazine, June/July 2006

Effective Execution in a Demand-Driven World

Delivering Your Perfect Order Promise

by Beth Berndt

It’s not sufficient today to insure your company’s part of perfect order performance. The notion of a demand-driven supply chain is based on changing a manufacturer’s view of its own business processes, as well as tightening their relationships with fulfillment partners, in an effort to provide more flexible and responsive product deliveries, and a new level of customer service. This involves aligning business processes to manage demand and supply activities, both within and beyond the four walls of manufacturing – outside the traditional concepts of one’s own “enterprise.” This can result in an expanded ability to relate to your customers – and to your customer’s customers – in a whole new way.

Moving from forecasting and planning, to effective execution and order fulfillment through all levels of your food and beverage supply chain, requires timely customer response while managing continuous and unexpected changes in both actual demand and supply processing.

Given the added levels of complexity with a demand-driven business approach, to delivering consistent product quality on time, for the right price, based on both customer and internal targets – food and beverage manufacturers must provide operational management, visibility and control, due to nature’s less-than predictable ingredients as part of supply chain fulfillment business processes. This includes adhering to both government and customer-based regulatory controls while handling, processing, and moving raw ingredients, intermediates and finished products.

To improve your overall supply chain’s ability to sense and respond to demand and supply variability during order fulfillment, it’s key to have an accurate actual demand/supply picture, when promising customers delivery against new or existing sales orders. Perfect order responsiveness by manufacturers who adopt a demand-driven business model in their supply chain offers a distinct competitive advantage in the food and beverage marketplace.

Ironically, strategic planning and agility during order fulfillment doesn’t always find an easy coexistence in organizations today. Manufacturers who excel at strategic planning are often challenged to spot and pursue new opportunities, while those who excel at managing day-to-day operations rarely find time to plan strategically. In order to excel within a demand-driven supply chain, incorporating excellence in both ends of the planning and execution spectrum is a must. This includes organizational alignment to understand and respond to constantly changing demand-driven requirements, in order to achieve optimum results. A demand-driven supply chain is based on a generic key message – focus on demand. This places pressure differently across each industry segment, even by individual Standard Industry Codes in the food and beverage sector.

Product and Services Innovation

Food and beverage products often have short product life cycles, which demand rapid and innovative New Product Development (NDP) programs. Being able to efficiently and seamlessly manage new product introductions, lifecycles for ongoing products, and related value-add services offerings within both retail and institutional food service marketplaces can be a major demand-driven business differentiator. Today, both private label and branded product manufacturers are evaluating and bringing new products, containers, and multiple package sizes to market rapidly, and with great frequency.

In retail markets, this often includes promotional labeling, giveaways, and aisle and end displays, often based around seasonal events. Promotional packaging initiatives strive to gain shelf space, customer favor, and ultimately, increased market share. This means food and beverage manufacturers, and contract outsource manufacturers, must manage product formulas by individual plant and line. Each product may also include complex pack size and label combinations – all requiring formula level control (i.e. date-sensitive versions by manufacturing location). Manufacturers have also recently seen growth in “store brand private label” products, increasing the need for close collaboration between manufacturers and their end customers, to improve NPD processes. Synchronizing new product programs based on production, distribution, and sales requirements is key to insuring the right promotional packaged products are delivered to the correct customer, at the right time.

Just as critical as managing new product introductions and end of life retirement of product offerings, is managing the creation, introduction, adoption and expiration of value-add services offerings around these products. Services may include a manufacturer’s rebate offer to end consumers, special handling during warehousing and transport of products, even the timing and offer of providing consolidated invoicing and/or special payment terms for early payment. Excellence in all of these areas can help food and beverage manufacturers manage, influence and shape customer demand.

Insuring Product Quality

During the actual manufacturing of products, the quality-related properties of individual inventory lots used during production become part of every resulting lot produced, from ingredients, through intermediates, to finished product lots. The quality properties of ingredients often introduce lot-by-lot variability, which impacts both product formulation, and the actual manufacturing operational processing steps necessary to deliver standard products every time a product is made.

For example, manufacturers of meat and dairy products often achieve consistent quality products by uniquely blending and processing differently for each production lot – being forced to use a variety of ingredients across multiple production lines, each with unique processing steps. While they would certainly prefer to use standardized ingredients that always match their target quality specifications, nature inherently delivers a daily variety of bounty with unique quality traits, from various harvest sources. Cows can’t be programmed to provide fat-free, 1 percent, 2 percent, and 4 percent milk – either to drink, or use when making cheese or other dairy products. And for meat processors, poultry, pork, lamb, and beef don’t follow a “one size fits all” target quality specification. Still, these manufacturers must deliver consistent products to customers, internally managing product and process formulation, based on the varying properties of key ingredient found in each inventory lot, every day. For these manufacturers, it is both a key requirement and business strategy to deliver consistently high quality products within their demand-driven supply chain, while also maintaining the lowest material cost possible.

Private label manufacturers are also constantly searching for ways to offer customers value-added services, such as tailoring products based on a customer’s unique specifications and target markets, and even offering graded quality and quality-sensitive pricing for some products, based on the properties of each lot (i.e. PH, brix, protein and/or fat percentage moisture content, etc.). It’s easy to see how quality introduces another level of complexity in a demand-driven supply chain, sometimes requiring manufacturers to manage each inventory lot of product uniquely, when graded levels of superior quality are desirable, and can influence both customer interest and market price. Food and beverage manufacturers are often constrained when considering ingredient suppliers, as well, based on the customer quality mandates placed on them – they may simply not have the luxury of a large list of alternate suppliers that meet the demand-driven quality requirements of their customers.

Both governing regulatory agencies and customer compliance mandates mean food and beverage manufacturers, and their entire supply chain, must be able to track and trace all consumed ingredients, intermediates, and produced finished goods by inventory lot – from field, through manufacturing, distribution, and out to the end consumer. This includes food products that begin with the “disassembly” of key ingredients (i.e. meat, grain, fruit, milk, etc.) into literally hundreds of co-product and by-product intermediates – which in turn can go into hundreds of finished products. Add to this the requirement to provide forward and backward inventory lot history, from primary material sources to end consumers – and it’s easy to see why providing safe and secure products is a critical value add service of food and beverage manufacturers in a demand-driven world, all while keeping inventory fresh and in constant motion.

The useful shelf life of products is also paramount in food and beverage industry. Freshness and aging dates by inventory lot often dictate a (near) make-to-order supply philosophy. Visibility of age/shelf life by product and lot in every inventory location is critical to minimizing expiring lots and product waste. Aging dates also allow for maximizing sales demand opportunities, such as providing customers with a guaranteed number of remaining shelf life days for perishable products, at the time of sale and delivery. And shelf life concerns don’t end with the sale. Retailers and food service customers often negotiate value add services with manufacturers, to return expired goods and provide credit towards the next delivery.

Efficient Supply Chain Responsiveness

Of course, food and beverage manufacturers are most profitable when they have long production runs per product, and can improve manufacturing efficiency due to less changeovers, etc. Longer production runs often also improve product quality and yield. But in a demand-driven world, smaller production runs and more frequent customer deliveries can make long production runs unfeasible. Manufacturers are being challenged to eliminate inefficiencies of shorter production runs through better planning and scheduling, to free up plant capacity and minimize labor/changeover costs, to provide a competitive, higher level of customer service. This means the need for sophisticated planning and scheduling is even greater in a demand-driven world.

A service-oriented procurement strategy allows manufacturers to leverage the value add services of their suppliers, where procurement previously focused on one number – price per unit. Buying products based solely on a low price point, while oblivious to demand or capacity, can ignore the strategy of companies who themselves compete based on value added services, and not on price alone. Demanding value-added services from your suppliers for the same price, rather than demanding lower prices, can be innovative. Ideas for value add supplier services often come directly from production or warehousing, where convenience drives ingenuity and makes executing daily task easier. Leverage collaborative relationships with trading partners, just as certainly as they leverage their relationships with you.

Food and beverage distribution channels also provide opportunity for value-added services in the demand-driven supply chain, beyond the products they provide. Manufacturers of fresh products (i.e. dairy, meat, produce, and bakery goods) will often invest in a fleet of route vehicles, or contract with route delivery providers, to make frequent deliveries to their customers, often multiple times each day. To better manage costs, route vehicles and direct store delivery carriers also offer expanded products and services to customers, beyond those they themselves manufacture. Every aspect of your supply chain can be evaluated for opportunities to offer added value to your customers.

Making and stocking products in inventory is a traditional way of managing variable demand. But the added costs of safety stock can include: raw materials, packaging, manufacturing machine & labor, warehouse movement, storage at multiple locations, and transportation through distribution channels. Such costs must be balanced against the risk of failing to achieve agreed customer service targets. Shifting emphasis from inventory levels at supplying warehouses, to measuring and managing demand/supply at the point of use, is key to understanding trade-offs, to maintain and improve service levels and competitive market share.

Summary

While improving responsiveness to customer demand is important, being demand-driven is about more than just being responsive and executing efficiently. Having real-time visibility of inventory at the point of use, and anticipating customer demand from this, provides new opportunities for manufacturers to begin influencing and shaping customer demand.

Beth Berndt is director of industry solutions for consumer products at Ross Systems. Reach her at 770-351-9600 or bethberndt@rossinc.com.

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