Fundamental changes in the consumer-manufacturer relationship have already made the supply chain (as we know it) irrelevant. Consumers are demanding "what they want, wherever and whenever they want it"- and supply chains cannot meet those demands effectively, simply because they are supply -, not demand-driven.

Since consumers are - or should be - the focus of a company's existence, consumer demand should be at the heart of the business. As we show in our book*, managing consumer demand is also the key to managing the bottom line, as revenues are driven by the simple but focused formula: demand multiplied by price.

Recent growth in the intensity and complexity of consumer demand has exposed the weaknesses of the traditional supply chain, which - despite attempts at greater integration and collaboration - is now an outmoded business model and past its sell-by date.

Retailers, manufacturers and distributors faced with a consumer-driven proliferation of packaging, sizes, shapes, colours and other product options have found planning around consumer demand a real challenge. As product choices have multiplied so inventory and supply chain inefficiencies have increased, creating more problems.

The supply chain can consume well over 50 per cent of a company's operating expenses. It has therefore been an obvious area to explore and exploit in the search for business systems improvement. This explains the Holy Grail of supply chain optimisation, which is still a major preoccupation for many managers.

It is also a misguided mission for companies that want to achieve any more than short-term cost savings. The fundamental problem is that a supply chain does exactly that - it supplies goods through the chain to the consumer - and ironically, its very success has prevented industry from creating more competitive business processes.

In fast-moving consumer goods, high-technology, automotive and other manufacturing-intensive sectors where there has been heavy IT investment in supply chain re-engineering and optimisation, supply chains have become very efficient at moving products to consumers.

But are they the right products, in the right quantity, and at a profit-maximising price?

Investment in supply chain improvement, though worthy, is misguided. This is because it focuses on supply chain efficiencies rather than business effectiveness- and on supply, not demand. A new approach is needed if manufacturers, retailers and other players in the supply chain are to compete effectively in consumer-driven markets.

IT industry claims for supply chain-driven competitive edge are at best questionable. As the majority of manufacturers already have one, traditional supply chain systems are moving towards commodity status - and there is little edge in that.

Adding CRM (customer relationship management) and collaborative capabilities will simply disguise the fundamental misorientation of the supply chain for consumer markets - and delay the advance of business. It is time to move on.

The demand-driven company - and central to it, the consumer demand-driven supply chain, also known as the "demand chain" - is arguably the most significant new business model to emerge in the last twenty years.

The demand-driven organisation focuses all its resources - including production, R&D, sales and marketing, and customer services - on consumer demand. Both corporately and technically, this is much more than a simple CRM investment, and should not be confused with it. It involves a radical change in thinking that takes the company, its supply chain partners - and its systems - into a new business environment.

The demand-driven business model - which is now being implemented by some early adopters, including a number of Fortune 1000 companies - uses technology to focus on the consumer's actual demand behaviours: employing sophisticated forecasting, market research and business intelligence to drive improvements through the demand chain that increase revenues and profitability (profit is a key performance indicator for the demand chain); reduce inventory; improve product management; and sharpen the focus on profitable, value-adding customers.

A demand-driven supply chain is geared to market speed and agility. Comparing the characteristics of consumer demand-driven and traditional supply chains also reveals the very real limitations of the latter.

The supply chain looks for efficiencies ("how can we achieve a lower manufacturing cost per item")- whereas the demand chain focuses on effectiveness ("are we making the right products? Are they what the consumer wants? Are they profitable?").

Revenue generation - not cost - is the key driver. The focus is on longer-term planning and long-term capabilities - rather than short-term control and capacity constraints (the traditional view).

In the demand chain environment, processes are focused more on planning than execution. Manufacturing technology takes care of much of the execution process (with manufacturing and ERP systems assuming commodity status). It is what manufacturers do with the process - what they manufacture, how well they anticipate and respond to consumer demand - that now determines the future of their business.

As the management of demand becomes recognised as the most important driver for organisations, there will be more focus on demand chain management (DCM) systems. In the evolution of supply chain systems DCM systems sit at the top, measured by revenue effectiveness and planning capability. This is because they focus on managing the business based on higher level consumer demand signals, and making planning decisions based on this information.

This also has the effect of organising the demand-driven supply chain around real-time consumer demand.

E-demand chains, enabled by eDCM systems take the real-time capability a stage further. Also known as demand portals, they use e-business tools that help to create trading communities and improve chain relationships, centred on the sophisticated analysis of demand. For example a retailer can use an eDCM system to simultaneously manage demand online from, say, multiple high street, web purchase and catalogue sources, in real-time, analysing consumer demand patterns minute by minute, and balancing inventory across all three.

Understanding consumer demand is the key to profitability. The consumer really is becoming "king"- demanding higher quality, better service, streamlined purchasing processes, lower prices, and shorter lead times.

The successful companies of the future will build their business around consumer demand, supported by effective demand chain systems. A few are almost there.

* Creating demand driven supply chains: How to profit from demand chain management (Chandos Publishing, Oxford, UK)- by Dr Jim Langabeer, senior vice-president for consulting and Jeff Rose, vice-president for global marketing at Demantra, a demand driven supply chain specialist www.demantra.com. Both authors have worked extensively in global supply chain management.