Compare And Contrast The Demand Driven Approach

The demand driven approach is different than the traditional metrics because it focuses on flow. Traditional metrics are focused around cost and being efficient. Being efficient relates to having a worker doing something all the time. This leads to excess inventory in products that aren’t needed at the moment or are slow selling products. Inventory shows up on the balance sheet as an asset, the more inventory you have, the greater the less cash you have available This can be misleading to people trying to make decisions about what to do. GAAP wasn’t made to base decisions, planning, or investment off of in the first place.

Traditional metrics are based on cost-centric efficiency strategy instead of the demand driven way of flow-centric efficiency.

An employee will always act in a specific way according to the way they are being measured. In the case you aren’t being measured you will never perform as well as than when you are. Most people behave in line with the way they are being measured. For example, if the performance of an employee or a supply chain is measured by having the lowest unit cost they will act in a way that gets the lowest unit cost. This means that they will start running machinery at capacity. Then you run into the problem of never ending inventory as well as a decrease in cash available. People believe that the savings of driving down unit cost will be shown on the bottom line. The truth is that those savings don’t show up on the bottom line, instead the savings are shown in the excess amount of inventory it took to drive the cost down in the first

When an organization is demand driven they are providing an environment where thinking about issues of what is going on is encouraged. It creates an environment where people are happy to give ideas in a field that is always changing. If workers have to go to work and do the same exact thing everyday such as figuring out ways to drive down cost, they start to lose interest. By using a flow-centric approach employees have more freedom to explore other issues not related to cost. Doing the same thing gets boring and creates and environment that people no longer want to work in. It is easier for someone to do a job when they are interested in it and feel as if their opinion matters. In cost-centric environment employees get stuck in the never-ending cycle of having to much inventory and then for the manufacture has to sell at discounted prices. Also using the correct metrics cut down on waste. Overall less waste means more money to provide something of value to a