Shaping demand or demand shaping?

Michel van Buren
May 17, 2018 1:30:16 PM

In September last year I attended my first-ever Gartner’s Supply Chain Executive Conference in London – something that had long been on my wish list, and I finally managed to make it happen. The conference brings together the crème de la crème of the international supply chain community for two days to participate in a truly top-class programme. And Gartner’s approach is very clever. The companies in the European Supply Chain Top 25 (the likes of Unilever and McDonalds) not only have an excellent product and an excellent supply chain, but also and above all excellent marketing – just like Gartner itself.

To be a part of the international supply chain community

Admission to the Supply Chain Executive Conference doesn’t come cheap – the price of a ticket is an eye-watering €3,000. And after queueing to pick up your badge on arrival you’re asked for your passport as proof of ID, otherwise you won’t be allowed in. And all of those businessmen (and a few businesswomen) in their smart suits meekly do as they’re told – including yours truly of course. Naturally no one wants to miss the tremendous programme, but let’s be honest, it’s even more important to just be there and feel part of the international supply chain community, isn’t it?It’s impressive to see how Gartner does this: a terrific example of shaping demand. Surely it’s every marketer’s dream to get people to pay €3,000 to attend an event and then also to demand that they show their passport in order to be allowed in!

Demand shaping based on behavioral data

Well in advance of the conference in London I started doing some internet research: surfing the web and looking for the best travel options, you get the picture. By pure coincidence, I have two travel options open to me with equally long journey times from my home; I can take the Eurostar train service to London via Brussels or I can fly. I soon discovered that both alternatives were priced roughly the same, which I guess was logical and maybe I was being naive to think that it was even worth investigating whether I could save any money – but I am a frugal Dutchman after all! Eventually I got bored of searching and decided to postpone my decision about whether to go by train or plane for a while.

A couple of weeks later, I visited the same web pages to compare the rail and air travel prices again. In that short space of time, the prices of both options had increased considerably! Aha, I thought to myself, this is a fantastic example of demand shaping. I would hate to be the boss of a major airline or rail company, such extremely capital-intensive industries in which it is of vital importance to achieve a minimum capacity utilization rate for each journey. Demand shaping is crucial for these sectors. The buyer’s decision is influenced in the seller’s favour by offering incentives, or in this case by punishing procrastination. This optimizes the capacity utilization rate – in my case of the train, because in the end I decided to take the Eurostar, quite simply because I’d never been on it before. And needless to say, when the time came for my journey, the train was indeed completely full.

Shaping demand to control you supply chain

But this example from the world of travel is one that resonates with all of us. Things are done more subtly in the FMCG sector, for instance. It is unbelievably difficult to achieve perfect alignment between supply and demand; you’ll never get it 100% right. At a certain point you have to decide how much to manufacture. This marks the start of the so-called ‘frozen period’ in which no more changes can be made to the supply planning. But once the goods are ready, Sales and the Demand Manager can still play around with the quantity of products in the supply chain. For example, if sales levels appear to lag behind, they can temporarily reduce the price by at least 15% (because when the price is cut by 15% or more, consumers will consider switching to a different product – at least temporarily). And this is just one possibility. The crux of the matter is that demand shaping techniques enable you to continuously monitor and shape supply and demand in the chain, separately from your structural S&OP process.

I will be travelling to London once again later this year to attend Gartner’s next Supply Chain Executive Conference on 23 September. I’ve got my passport at the ready and I’ve booked my flight early this time. I’ve decided to alternate between taking the train one year and the plane the next. Let’s see how the flight and rail companies react to my buying behaviour!

 Read our next blog: Why should you use demand sensing and demand shaping technics?

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