Market transparency and greater price sensitivity have led to lower customer loyalty.

Product commoditization reduces true differentiation in both the consumer and businessto-business (B2B) environments. Increasing volatility is a major issue. The report says that some 75% of respondents consider demand and supply volatility and poor forecast accuracy to be the biggest supply chain roadblocks they currently face. (See chart below.) The increased commoditization of products plays a key role here, even beyond the demand volatility associated with the recession. With an increasing ability and willingness of customers to find alternative supply sources, B2B customer demand can move up or down dramatically and rapidly. Customer loyalty has significantly decreased in the past 12 months, said one industrial manufacturer participating in the study. What are companies doing to manage this volatility? Companies are focusing primarily on deepening collaboration with key customers to reduce unanticipated changes in demand, the report says. Half of participants plan to implement joint real-time planning with their key customers by 2012, and nearly half plan to develop processes for improved demand sensing that is, understanding the market rate of demand in real time, rather than having to wait for after-the-fact reporting.

Demand uncertainty is far and away still the top concern of supply chain mangers, according to a survey by LifeWork Search, an employee recruitment firm. Eighteen percent felt inventory surplus was the top concern, 12 percent voted for inventory shortage, while 8 percent believe lead times are the top holiday concern, and 3 percent chose "other"

There are a number of key factors organisations need to control when coping with the challenges of demand volatility and consumer promiscuity. Improved Planning Latest technological developments are allowing companies to enhance their supply chain planning processes. These improved planning tools allow for more sophisticated algorithms that can process more data and use inventory optimisation technology to generate what if scenarios. Interestingly the most innovative solutions on offer are designed by small software companies such as Kinaxis, Terra Technology, TXT, ToolsGroup, Solvoyo and Logility. Companies are also using behavioural market segmentation, to introduce better consumer knowledge into the process. For example, a global FMCG has introduced a better understanding of consumption levels resulting from promotions (consumption elasticity), thus being able to better anticipate sales after promotions. To optimise the use of this rich data they are also raising the statistical and analytical capability of their teams.

However last minute promotional behaviour driven by consumers and competitors (outlined in the previous section) makes the whole process difficult to forecast. To succeed it becomes critical to understand the supply chain in real time and react accordingly. FMCGs companies are putting a lot of focus into understanding competitor deals in the same category and the shelf space allocated from day-one-of leading promotions. Field sales reps feed live information via smart phones (picture and chat) to planning teams who in turn can ensure they take appropriate action in the fastest time possible. More advanced companies are taking this one step further by using social media for capturing the early signals coming from consumers, however there is still a long way to go until this becomes an effective and more widespread practice. There is clear evidence of the benefits obtained by implementing the actions explained above, but they wont by themselves solve all challenges that demand volatility entails. There are other aspects to consider that are explained in following sections. Greater Agility Organisations increasingly need to embed agility in their supply chains by placing stocks closer to consumption points, reducing the set-up times of production runs or implementing postponement techniques. This increased flexibility in manufacturing systems may require significant investment in time and money. In any case, it is clear that becoming more agile is an aspect of supply chains that organisations cannot ignore. All the companies we have spoken to are taking action to react faster to market changes, thus being agile is a requirement all supply chains will have to meet to maintain competitiveness. It is a given. Point Of Sale (POS) Data Sharing Sharing information between business partners is a proven way to achieve higher levels of efficiency and effectiveness, especially when managing promotions. By doing so suppliers can react faster and better to market changes, thus avoiding the negative consequences of the Forrester effect. One interesting initiative is the Tesco Connect project. Tesco has created a free web portal that allows the sharing of forecasted orders with suppliers taking into account daily sales forecasts by item and store combined with the Tesco logic of creating full pallets, trucks and good depot utilisation. The benefits of the initiative have been a 10% reduction in lost sales at stores and increased distribution efficiencies for suppliers. However for many organisations achieving the level of collaboration needed to make the most of this information sharing is not an easy task, rather it is a challenge to overcome, as we shall discuss in following sections.

Why Planning Alone is Not the Answer While Sales and Operations Planning (S&OP) software and demand planning systems build a better plan, the reality is that the plan can never be completely accurate given the certainty of daily changes that will occur inside the planning horizon. More and more companies are operating in an environment where many of the assumptions taken into the planning process are proven wrong as soon as you complete that process. Today's demand driven supply chains, with their customer-focused, "pullbased" models, require tools for collaborative demand management and profitable demand response. This customer-centric mindset acknowledges that manufacturers and brand owners can no longer effectively "plan" their customers' needs; rather they must focus on responding to them. This requires abandoning the historical silo mentality of forecasting and planning. For years, companies have focused on planning solutions that remove people from the process in the hopes of running the business like clockwork. Given the level of volatility, human input and judgment is essential to figure out the right tradeoffs to make when the business doesn't run as planned, (e.g.. forecast change, product revision, late customer order, supply shortage...), which is now the rule, not the exception. When You Can't Plan Your Customers, What Can You Do? The industry-leading organizations mentioned above have all learned that what you can't plan, you must respond to. Market leading companies understand that developing a core competency in Response Management becomes a critical corporate capability and a defining competitive advantage in volatile environments. Solving the Response Management problem in demand management organizations requires:

accurate and timely demand sensing to quickly understand demand shifts collaboration: both with customers to gain consensus on true demand, and with internal colleagues to develop and analyze resolution alternatives; and decision support that drives profitable responses through shaping demand and allocating finished goods supply as appropriate

Demand management is a strategic priority for customer-focused companies, so it stands to reason that it requires a strategic solution to enable the process and empower the people responsible for it. Response Management solutions combine personal alerting, multi-enterprise visibility, collaborative "what-if" analysis and rapid decision support, so

demand management staff can be empowered to deliver superior customer service and achieve revenue attainment. Alerts Exception-based alerts to projected misalignments in demand and supply (e.g., forecast change beyond tolerance, late demand impacting quarter-end, supply disruptions, late customer orders, etc.) can enable demand managers and order fulfillment staff to quickly re-align supply and/or engage manufacturing operations as needed. Multi-enterprise Visibility Fully automated integration of demand and supply data from multiple sources including CRM, ERP, demand planning tools, supply chain management (SCM) tools, spreadsheets and point-of-sale data, provides a single integrated view of forecast, sales orders, inventory and supply. Automated capture, consolidation and roll-up of customer sales forecasts from disparate systems and sources across multiple distribution channels enables quick consensus for forecast development. Collaborative Analysis and Decision Support Quickly analyze the impact of daily demand and supply changes using "what-if" analysis to identify the best operational actions to drive effective response, ensuring S&OP business objectives are achieved. Simulate, share and review options with multiple stakeholders. Evaluate the impact of all decisions (prior to execution) against the achievement of defined performance targets. With tools for collaborative analysis and decision-making, demand management, sales and customer service staff can proactively and continually resolve demand and supply misalignments and ensure that the right inventory is in the right place at the right time. Achieving excellence in responding to changing customer demands has become the number one challenge facing enterprises today and can represent the largest opportunity for companies to increase customer service, enhance margins and attain more predictable revenue across the entire value chain. Randy Littleson is vice president, marketing for Kinaxis Inc which.delivers an ondemand Response Management service that enables customer-focused companies to achieve breakthroughs in operations performance and customer satisfaction by rapidly and more profitably responding to constant changes in demand, supply and product. Kinaxis RapidResponse combines personal alerting, multi-enterprise visibility, collaborative "what-if" analysis and rapid decision support to empower front-line

supply chain staff with tools for risk tradeoff and response to daily changes inside the Sales and Operations Planning horizon.