Why demand-driven strategies are essential for supply chain success

Supply chain has evolved significantly over the past few decades. As technology has advanced, so too has our ability to process vast amounts of data. However, this has not always led to better outcomes.

In fact, some of the most fundamental issues within supply chains, like system nervousness and dependency explosions, have persisted despite the impressive computing power available today. As Carol Ptak, a seasoned supply chain expert, explains in our conversation on the NeverEnding Climb, achieving a demand-driven supply chain is not just a trend—it’s an operational necessity that drives both efficiency and profitability.

The Misconception of Faster Computers

One of the major takeaways from Carol’s extensive experience is the critical flaw in the assumption that faster computers automatically lead to better decision-making. Early on, the promise of quicker processing was seen as a solution to the inefficiencies of supply chain management. However, as Carol points out, this only led to "more system nervousness"—an issue where more speed did not improve the quality of decisions but rather exacerbated the complexity of supply chain operations.

In her early days working with materials requirements planning (MRP), even the most advanced systems took days to calculate inventory needs, and today, even with faster technology, those same basic problems remain. This highlights a crucial point: technology alone is not enough to solve operational issues. Instead, the approach to managing supply chains must shift to more thoughtful, demand-driven strategies.

The Real Purpose of Sales and Operations Planning (S&OP)

Sales and operations planning (S&OP) is a concept that’s often misinterpreted and misapplied. Originally introduced by Dick Ling in 1988, S&OP was meant to align an organization’s strategic goals with its operational capacity. Carol highlights how S&OP was intended to help businesses understand the consequences of their decisions—strategic choices in sales and operations should reflect the unique operational capabilities of a company.

Effective S&OP goes beyond merely balancing supply and demand. It involves exploiting the operational capabilities that give a business its competitive advantage—those capabilities that make a company unique and valuable to its customers. Carol’s decades of experience reveal that without proper S&OP, companies risk losing sight of what makes them competitive, focusing instead on short-term tactics that undermine long-term success.

The Flow of Goods and the Importance of Operational Excellence

Flow is a foundational concept in modern supply chain management. Carol emphasizes that achieving optimal flow in operations leads to improved customer service and lower operational costs. When goods flow smoothly through a supply chain, companies can respond more quickly to market changes, reducing the risk of costly delays and inefficiencies. This is especially crucial when managing inventory, as poor flow can lead to overstocking, stockouts, and the dreaded bullwhip effect.

Carol’s experience at a composite company demonstrates the real-world consequences of poor flow. When the company mismanaged inventory and procurement strategies to achieve short-term savings, it ended up with surplus inventory that became obsolete. As Carol explains, this not only tied up valuable resources but also prevented the company from responding to market shifts and ultimately harmed its profitability.

Key to improving flow is shifting the mindset from short-term cost-cutting measures, like bulk ordering at a discount, to a more sustainable approach that emphasizes steady, predictable procurement and production cycles.

The Return on Investment (ROI) from Operational Improvements

Ultimately, the goal of any business is to achieve a solid return on investment (ROI). Carol underscores how optimizing flow within a supply chain directly impacts ROI. By improving the efficiency of operations—removing bottlenecks, streamlining processes, and enhancing inventory management—businesses can increase profitability while maintaining or even reducing their investment.

This concept is not just about improving customer satisfaction or reducing costs in isolation—it’s about creating a more profitable business model. When businesses focus on improving the flow of their operations, they can simultaneously reduce costs and improve service, creating a positive cycle that leads to higher profits and better financial returns.

The Pitfall of Misallocating Costs

Carol also explains how poor cost allocation can distort a company’s financial decisions. She explains a scenario in an aerospace company where engineering costs were incorrectly spread across all products, leading to skewed cost structures that made some products appear unprofitable. This led to strategic missteps, such as losing a key competitive advantage and almost bankrupting the company.

Carol’s story illustrates an important lesson: accurately attributing overhead costs is vital for clear decision-making. Without a clear understanding of where costs are coming from, it’s easy to make decisions based on faulty data that can harm both short-term profitability and long-term growth.

The Bigger Picture: Demand-Driven Supply Chains

The overarching theme in Carol’s insights is the need for businesses to adopt demand-driven strategies. This approach focuses on responding to real-time demand signals rather than relying on forecasts or static data. By aligning supply chain operations with actual customer demand, businesses can improve both flexibility and profitability.

A demand-driven approach is not about chasing every fluctuation in demand but about setting up systems that are responsive, resilient, and able to capitalize on market shifts quickly and effectively. This requires not just technology but a mindset shift—one that prioritizes flow, operational excellence, and strategic alignment.

Takeaways for Your Business

Carol Ptak’s experience and expertise offer valuable lessons for businesses looking to improve their supply chain operations. To adopt a demand-driven approach:

1. Shift away from over-reliance on technology and focus on optimizing flow and operational processes.
2. Rethink S&OP to align strategic goals with operational capabilities, emphasizing the long-term advantages of steady, responsive systems.
3. Prioritize accurate cost allocation to avoid distorting financial decisions and damaging profitability.
4. Embrace demand-driven strategies that align your operations with actual customer needs and market shifts.

By focusing on these key areas, businesses can move beyond the limitations of traditional supply chain models and unlock new levels of efficiency, profitability, and competitive advantage.

Click here to watch the entire interview with Carol.