Rethinking Supply-Demand Alignment
Alignment is a fine word. In supply chains, however, it too often means aligning people to a spreadsheet rather than aligning scarce resources to what customers value. The traditional recipe goes like this: choose a single forecast, gather sales, operations, and finance to agree on it, and then police adherence with an assortment of KPIs. The ritual feels reassuring; the economics, less so.
In Introduction to Supply Chain, I argue for a different compass. The aim of a supply chain is not to preserve harmony around a number; it is to commit capital, capacity, and attention where the expected, risk‑adjusted return is highest. Throughout the book—especially the chapters Economics and The Future—I try to show how this view simplifies what matters and discards what doesn’t.
The trouble with alignment‑by‑consensus
When a company asks for “one set of numbers,” it quietly assumes that uncertainty can be flattened into a single future. It cannot. Markets are lumpy, lead times wander, and the tails of demand matter precisely because they hurt the most when we ignore them. A consensus number does not remove this variability; it merely hides it.
Worse, alignment‑by‑consensus treats demand as if it were a fact of nature. Price, assortment, and availability are taken as externalities to the planning process, when they are actually levers that shape demand. If pricing sits outside the remit of supply chain, then the primary instrument for aligning supply to demand has been left on the table.
Finally, the usual scorecards—service levels, forecast accuracy, utilization, inventory turns—are frequently used as goals rather than diagnostics. They are not denominated in money. Optimizing them in isolation fragments decisions that ought to compete for the same scarce resources: cash, shelf space, line time, attention. A portfolio deserves a portfolio metric.
For a fuller treatment of these pitfalls, see the chapter The Future that examines forecasting practices and the limitations of consensus planning in Introduction to Supply Chain.
Alignment by economics
An alternative is deceptively simple: treat alignment as an economic problem. Prices—both the prices we post to customers and the internal “shadow prices” we attach to our own bottlenecks—coordinate choices better than meetings do. If a dock slot, a picking wave, or a cash day has an internal price that reflects its opportunity cost, then trade‑offs across silos become commensurable. Sales can ask for more; operations can say yes or no; finance can see the profit logic in either answer.
In this view, forecasts are inputs, not verdicts. They inform us about distributions—what might happen and how bad the tails could be—but they do not rule the decision. The decision is to allocate the next unit of capital or capacity to the most valuable opportunity available now, given what we know and what we choose to believe about uncertainty.
Because tomorrow’s demand is partly caused by today’s decisions, pricing belongs inside supply chain. When the price moves, so does demand; when demand shifts, so should supply. Treating price as a first‑class lever allows the system to align itself continuously rather than to conform periodically to a plan.
If you want the mechanics behind this stance, the book’s chapter Economics develops the argument in detail.
What this looks like in practice
Practically, alignment emerges from a decision engine that evaluates many small, concrete moves—buy one more unit, reposition one pallet, advance one production order, change one price point. Each move is priced, not narrated: what is its expected contribution once uncertainty and opportunity cost are accounted for? The engine ranks these moves and emits the best ones, continuously. No single number pretends to predict the future; instead, the portfolio of micro‑decisions adapts as the facts change.
Waiting becomes a legitimate action because waiting has value. If committing now forecloses better options tomorrow, then “do nothing yet” must be able to win against “do something now.” Postponement is not indecision; it is the preservation of optionality, and it should clear the same hurdle as any other use of capital or capacity.
Measurement returns to money. Service level, forecast accuracy, and the rest are useful as instruments on the dashboard, not as destinations. What counts is whether the stream of decisions raises the firm’s risk‑adjusted rate of return across its portfolio of constraints. If a KPI improves but the economics do not, the KPI is leading you astray.
Readers interested in the nuts and bolts—how to represent uncertainty, how to surface internal prices, how to arbitrate between competing moves—will find the details in the chapter Decisions in Introduction to Supply Chain.
Position on SDA. If “supply–demand alignment” means consensus around a forecast, I am not in favor. Consensus is not cash. If, instead, it means aligning scarce resources to the most valuable opportunities available under uncertainty, then I am entirely in favor—and the mechanism is economic, not ceremonial. Put price inside the supply chain. Let forecasts inform but never rule. Rank concrete moves by their expected, risk‑adjusted return and execute the best ones, continuously. That is alignment that pays.
