Q1a. What is Demand Chain Challenges ?
At present, there appear to be four main challenges to progress in transforming Demand Chains and making them faster, leaner and better: Linking Demand and Supply Chains
Demand Chain Information Systems
Demand Chain Process Re-Engineering\
Demand chain budget segmentation, targeting and optimization
Linking demand and supply chains
The core problem from the supply chain perspective is getting good demand plans and forecasts from the people driving demand: marketing, sales promotions, new product developments etc. The aim is to minimize out-of-stock (OOS) situations and excessive cost of supply due to spiky demand. Much attention has been drawn to the bullwhip effect. This occurs when demand patterns are extremely volatile, usually as a result of sales promotions, and it has the unintended consequences of driving up supply chain costs and service issues, due to supply capacity being unable to meet the spiky demand pattern and the entire chain becoming unstable as a consequence. Demand chain information systems
Information about activities and costs is an essential resource for improving value chain performance. Such information is nowadays readily available for the supply chain, due to the widespread implementation of ERP technology (systems such as SAP), and these systems have been instrumental in the transformation of supply chain performance. Demand chain process improvement
Processes in the demand chain are often less well-organized and disciplined than their supply side equivalents. This arises partly from the absence of an agreed framework for analyzing the demand chain process. Demand chain budget segmentation, targeting and optimization Demand chain budgets for marketing, sales and service expenditure are substantial. Maximizing their impact on shareholder value has become an important financial goal for decision makers. Developing a shared language across marketing and finance is one the challenges to achieving this goal. Segmentation is the initial thing to decide. From a strategic finance perspective "segments are responsibility centers for which a separate measure of revenues and costs is obtained". From a marketing perspective "segmentation is the act of dividing the market into distinct groups of buyers who might require separate products and/or marketing mixes". An important challenge for decision makers is how to align these two marketing and finance perspectives on segmentation. Targeting of the budget is the final thing to decide. From the marketing perspective the challenge is how "to optimally allocate a given marketing budget to various target markets”. From a finance perspective the problem is one of resource and budget allocation "determining the right quantity of resources to implement the value maximizing strategy". Optimization provides the technical basis for targeting decisions. Whilst mathematical optimization theory has been in existence since the 1950s, its application to marketing only began in the 1970s, and lack of data and computer power were limiting factors until the 1990s. Q1b. What causes of the Bullwhip Effect? How can we solve it? Perhaps the best illustration of the bullwhip effect is the well-known "beer game." In the game, participants (students, managers, analysts, and so on) play the roles of customers, retailers, wholesalers, and suppliers of a popular brand of beer. The participants cannot communicate with each other and must make order decisions based only on orders from the next downstream player. The ordering patterns share a common, recurring theme: the variabilities of an upstream site are always greater than those of the downstream site, a simple, yet powerful illustration of the bullwhip effect. This amplified order variability may be attributed to the players' irrational decision making. Indeed, Sterman's experiments showed that human behaviour, such as misconceptions about inventory and demand information, may cause...
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