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It's all about the customer.

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Demand-driven supply networks are replacing factory-based push supply chains of the 20th century as leading companies learn how customer-centered businesses operate differently. The change is bigger than you think.

Demand-driven supply networks are replacing factory-based push supply chains of the 20th century as leading companies learn how customer-centered businesses operate differently. The changed is bigger than you think.

Demand-driven supply network (DDSN) may seem like just another term for supply chain management. Don't be fooled. DDSN attacks areas of business overlooked by traditional supply chain management and that promise huge new efficiencies and growth. Proclaiming that the customer is king is not enough. Rebuilding the old push supply chain is essential to compete for profitable growth in the 21st-century business world (Figure 1).

[FIGURE 1 OMITTED]

20th-century supply chains The last century was all about the factory What marvelous advances were possible through the application of mass production techniques. Henry Ford's fabled River Rouge auto plant was a legend of productive efficiency--rubber, glass, and iron in one end and cars out the other. The offer to consumers was "Any color you want,

as long as it's black."

The biggest oversight of this 20th-century factory-centered supply chain was managing consumer demand. The efficiency of the chain remains limited by this oversight as current key metrics of supply chain performance indicate. Consider the following data:

* Median time to market for a new product in consumer packaged goods is 27.5 months.

* Median days of supply on hand for semiconductor manufacturers is 190 days.

* Median order error rate for industrial electronic equipment suppliers is 26 percent.

Today's supply chain still mostly serves the factory, not the consumer. As a result, several critical deficiencies persist:

* The bullwhip effect: Disruptions downstream ripple back ever more loudly, creating tremendous demand uncertainty Result: about $3 trillion worth of inventory locked in the U.S. and European supply chain as of October 2004.

* Linear optimization techniques: Failing to account for variability is fine in a factory with known task cycle times but no good across a network of flexible productive nodes. Result: 20 percent order error rate across U.S. industry

* No support for product innovation: The black box approach to research and development assumes that new products go through the same chain as existing ones. This is slow, wasteful, and error prone. Result: 75 percent new product failure rate globally

One big food and beverage company exemplifies what is wrong: Asked about measurement, this company's supply chain leader described a rich set of manufacturing utilization and throughput metrics but little or nothing tied to commercialization. What suffers is...

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