Should we say goodbye to the demand-driven supply chain?

Over the past 20 years, there's been an evolution in how experts think and talk about the supply chain; one that has moved away from a focus on supply and toward a focus on demand. Now Joe Shamir, CEO of the supply chain planning software provider ToolsGroup, says it's time for another shift in how we think about the supply chain.

Prior to the year 2000, most people thought of the supply chain in terms of supply, Shamir explained during his keynote presentation at the ToolsGroup's TG18 user conference in Boston, Mass., last week. Supply chains sought to answer the question, "What and how much are we going to supply or replenish?" Around 2000, Shamir maintains, most industry experts started to talk of the "demand-driven supply chain," proposing that supply chains need to take "an outside in" view that starts with the demand signal. All decisions about how the supply chain operates need to be driven by what the customer wants and needs, according to this philosophy.

While the demand-driven supply chain was definitely a step in the right direction, Shamir believes that it has its own limitations. "[The demand-driven supply chain] can be misleading because then you are focusing on the forecast and demand planning and not on the actual end goal," he said.

A supply chain's true end goal, he says, is to provide a service to the customer. He says that organizations need to evolve toward focusing on providing a "service-driven supply chain."

"We need to focus on how to deliver service efficiently, but a lot of organizations and processes are focusing on this intermediate result—the demand forecast—without taking consideration that it's only an intermediate step," said Shamir.

For example, a demand-driven supply chain is focused on identifying the demand signal and fulfilling discrete orders. A service-driven supply chain, according to ToolsGroup, would focus on achieving a target service level for a particular type of product (for example, a 98.7-percent service level for a new or high-margin product) instead of fulfilling discrete orders.