Turning your organization around: from supply driven to demand driven

Photo at blog from webmaster - 30/09/2010 - 11:19

In the context of my previous blogs on High Performance Organizations, I was asked about the importance of the organizational principles and methods used. The answer for me is simple: demand driven organizations will win in the end.

Most organizations try to structure and optimize their supply chain around products or services, evenly true for government or commercial entities. Zero production faults, zero compliancy issues, maximum use of all available resources and within that context minimized customer complaints are the things that management is using to organize and control. In the end this will almost always lead to decreasing value and increasing cost. Health care is a good example: we are so optimizing the process of delivery that there are more people administrating and managing than doctors and nurses at the bed side. Any optimizing the process further will cost twice the amount of savings.

But also commercial organizations suffer from this tendency: well known is the example of a Dutch general store which did cut cost for staff and supply chain but forgot that if people don't buy from you an optimized supply doesn't bring money itself. Of course product stock levels have a major impact on the cash situation but the cost of lean stock management become irrelevant if a customer goes to another supplier who can deliver instantly. And indeed having a crew by the phone just between office hours and sized at 80% of peak load seems ideal. But when the potential customer wants a Sunday morning contact, you miss out an opportunity. More generally when focusing on supply driven optimization, two major things are forgotten:

Customer

The customer, user, citizen knows exactly what she or he wants: instant delivery or solution of a personal problem or (perceived) need with simple access and appropriate costs. Hence the success of a lot of internet based services and shops. Interestingly this is not the same as what many organizations do in just transferring their supply centric processes to the web. In the webshop analogy: you don't go to the webshop of the general store but to "www.lawnmowers.wherever", assuming a far better selection, instant delivery, better service and a lower price (right or wrong).
Demand driven organizational design, based upon what your customer expects, will increase value and lower cost. Even so in the public sector: now I pay indirectly for tons of civil servants just executing rules thought up by the masters of non-optimization and overspending: the politicians and legislators. On top of that most of these rules I pay for don't apply to me. Apart from the common services any civilized community needs, I would rather pay for real personal services by the government when I need them and at the time I need them (ever tried to get an appointment at city hall in the evening or weekend?).

Innovation

If you focus on supply driven optimization you look mostly inwards. If any, innovation will be limited to improvement of the current offering. At the reverse, once chosen to go for a demand driven approach, continuous innovation is needed to keep on capturing the rather "fluid" attention of the customer. Forget the supply driven investment in customer loyalty and turn to the demand driven notion of customer intimacy.

Is it a simple supply or demand choice? No, as always one needs to balance. 80% focus on demand optimization to have sustained growth and 20% on supply optimization to keep pricing competitive seems the way to go. Difficult? No, some organizations already do or at least try it. Scary? Yes, leaving your supply comfort zone and turning to the demand of somebody you can't control is a major step. How to start? Just be agile: try, learn and try better.

hans.van.nes@results2match.com


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