Supply Chain Optimization Blog

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The Importance of a Demand-Driven Value Network

Many companies today are transforming outdated supply chain approaches in pursuit of demand-driven value network (DDVN) strategies. This is largely because leading supply chain practitioners have recognized the need to consider much more than simply the ‘logistics’ involved in moving product both inside the four walls and beyond. They must also incorporate procurement, manufacturing operations, and sales/marketing functions. ‘Physical distribution management,’ while still considered a critical operational competency, is now being recognized within a much broader supply chain perspective, and the related challenges companies face in meeting rapidly evolving marketplace demands require new ways of thinking and acting on this expanded view.

To drive ongoing success and dramatic supply chain efficiency gains, companies need to adequately address the reality that physical processes, such as warehousing, transportation, and manufacturing, have to be much more closely aligned and synchronously planned and managed along with other ‘virtual’ supply chain processes. These virtual processes include sales operations, demand forecasting, replenishment planning, supply planning, and procurement across the extended supply chain. 

What Is a Demand-Driven Value Network (DDVN)?
The notion of the Demand-Driven Value Network (DDVN) was first coined by Gartner as an alternative to both the language and logic of Supply Chain Management. The word ‘chain’ particularly was seen to evoke the imagery of a series of linked, but highly serial enterprise processes that could be easily disrupted by a single point of failure. The reality is that ‘network-level’ processes could/should occur synchronously across the enterprise in close collaboration with the enterprise partner network, along with fail-safe measures designed and implemented to mitigate the risks of disruption.

The change from ‘supply’ to ‘demand-driven’ rightly suggested that all network activities should ultimately be aligned, planned, and executed in pursuit of enterprise demand imperatives; supply is subservient to that end. Gartner specifically defined the DDVN as “a business environment holistically designed to maximize value of and optimize risk across the set of extended supply chain processes and technologies that senses and orchestrates demand based on a near-zero-latency demand signal across multiple networks of corporate stakeholders and trading partners.”

Why Do We Need DDVNs?
During the period from roughly the 1970s through the early part of this decade, there were many other dramatic business and market changes that complicated the challenges associated with this new line of supply chain reasoning. These included, but were not limited to the following:

  • A rapid expansion in global trade
  • The virtual disappearance of the vertically integrated business model
  • Growing outsourcing capabilities/partnership opportunities
  • The rapid development and adoption of commercial technology focused on functional, enterprise-level solutions
  • New levels of hyper-growth in connected consumers/e-commerce

These emerging challenges mean companies today need to address these new and increasingly complex business demands in new ways. They can also derive notable benefits. In fact, according to Gartner, “Organizations orchestrating DDVN’s perform better in the long term than peers with traditional, cost-focused supply chains. These companies grow revenue faster, achieve more than 15 percent higher perfect-order rates and reduce inventory levels by as much as one-third.” Gartner also notes that these companies make a point of exploring the factors that drive customer experience and satisfaction related to the movement of their goods throughout the supply chain/network. This means establishing close collaboration with key partners as well as visibility and interpretation of demand signals.

The Role of Technology in DDVNs
While many leading companies have been able to produce the dramatic results highlighted above based on their observance of these principles, advancements in technology seem to have been somewhat slower in their adoption. Perhaps the grim legacy and/or exorbitant historical costs of ERP and functionally-based technologies, paired with companies’ unwillingness to even partially abandon those solutions, has been a prohibiting factor. But the reality is technology is available to help address these demands. And in many cases, it doesn’t require the ‘ripping and replacing’ of existing enterprise technology solutions. It is also generally more affordable and more easily deployed by comparison.

The solution space that has evolved in support of these new principles has widely grown to become known as ‘control tower’ technology. While early control tower technology approaches were primarily focused on centralized data hubs providing enhanced network visibility, they weren’t really designed with automated response capabilities and often required a complex web of one-off trading partner connections with inherent data incongruities and system latencies. But now, more advanced control towers not only provide real-time network visibility, but they also feature collaboration and powerful AI capabilities to move beyond decision-support to decision-making and autonomous control of highly synchronized data across extended networks. Today’s intelligent control towers are helping to orchestrate entire value networks to run smarter and faster, delivering bigger benefits for all trading partners involved.  

Other more recent advances in technology have only helped propel the justification of control tower technologies, most notably internet-based platforms, with increased processing capacities, grid computing, SaaS-based solutions, and network-level permissibility/authentication. In the Control Tower Technology Value Matrix report published in November 2017 by Nucleus Research, the authors wrote, “To bring additional efficiency to the day-to-day management of the supply chain, vendors are bringing tools to market that automate many of the corrective actions that would otherwise have required human intervention. The latest phase of control towers builds on the automation tools by letting machine learning examine historical data of how the supply chain has operated to offer insights on where rules and thresholds can be reset. Additionally, vendors are working on capabilities that provide prescriptive actions based on anticipated issues that could impact the supply chain before they transpire.

Taking Action
Given the challenges associated with effectively handling supply chain execution today, the ability to respond to change is critical. 4SiGHT works with many companies to evaluate their current capabilities and determine where the gaps may be addressed by technology across their broader demand-driven value network. Contact us today to learn more.

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