Demand Management

1
Demand Management

• MPC 5th Edition
• Chapter 2

2
Demand Management

• Covers how a firm integrates information from and
  about its customers, internal and external to the
  firm, into the manufacturing planning and control
  systems.

3
Demand Management

• How a firm integrates information from its
  customers with information about the firms goals
  and capabilities, to determine what should be
  produced in the future.

4
Demand Management Forecast Plans

• In DM, FORECASTS of the quantities and timing of
  customer demand are developed.
• What do we actually plan to deliver to customers
  each period is the output of the process. This
  is based on marketing quotas, special sales
  incentives, etc. These amounts will be based on
  inputs from many different sources and not just
  quantitative forecasts.

5
Why Forecast and Plans are important

• A manufacturing manager cannot be held
  responsible for not getting a forecast right,
• A manufacturing manager can and should be held
  responsible for making their plans.

6
Responsibility of the MPC

• Providing the means for making as good a set of
  executable plans as possible and then
• Providing the information to execute them.
• and when conditions change
• The control function should change the plans and
• The new plans should be executed faithfully.

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Dependent vs Independent Demand

• Customer Demand (la richiesta del cliente) in
  most cases are independent demands (difficult to
  control and must be forecast).
• Demand of components (la richiesta di componenti)
  in the assembly of a product is often dependent
  demand and can be calculated (although plans will
  change).
• What is the customer order decoupling point?

8
Customer Order Decoupling Point

• Can be looked at as the point at which demand
  changes from independent to dependent. It is the
  point (nel processo di produzione) at which the
  firm, as opposed to the customer, becomes
  responsible for determining the timing and
  quantity of material to be purchased, made, or
  finished.
• Il cliente ordina in base a La fabbrica è
  responsabile rispetto a
• Engineered to order catalogo Suppliers
• Made to order materiali disponibili Raw
  Materials inventory
• Assemble to order parti disponibili WIP
• Made to stock finiti disponibili Finished
  Goods

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Decoupling Points e Lead Time
Make-to-Stock (MTS)
Finished Goods
Short
Components/Subassemblies
Lead Time
Assemble to Order (ATO)
Raw Materials
Make to Order (MTO)
Suppliers
Long
Engineer to Order
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Demand Uncertainty how is it dealt with?

• MTS Safety stocks of end items.
• ATO Forecast product mix and calculate expected
  components and sub-assemblies. Safety stock
  carried in these items.
• MTO Uncertainty involves the level of company
  resources that will be required to complete the
  engineering and produce the product once the
  requirements are determined. May carry some raw
  materials.

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Demand Uncertainty how is it dealt with?

• MTS Safety stocks of end items.
• ATO Forecast product mix and calculate expected
  components and sub-assemblies. Safety stock
  carried in these items.
• MTO Uncertainty involves the level of company
  resources that will be required to complete the
  engineering and produce the product once the
  requirements are determined. May carry some raw
  materials.

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Examples

• Give examples of Make-to-Stock (MTS),
  Assemble-to-Order (ATO) and Made-to-Order (MTO)
  products?
• What are the advantages in moving from MTS, to
  ATO, to MTO?

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Northland Computer Shop (Q4, p. 55)

• Moving from stocking finished computers to an
  assemble to order approach.
• 7 hard disk choices, 6 mother boards, 5 CD/DVD
  options, 3 operating systems, 4 other options.
• How many potential combinations of finished
  computers?
• Compared to
• _at_ 10/forecast
• Savings ???

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Cumberland Company (Q5, p. 55) ???

• Five identical products
• Demand 100/month, std. Dev. 10 units.
• What is the yearly sales distribution of each
  product?
• Expected Demand
• Std Dev
• What is the monthly sales distribution?
• Expected Demand
• Std Dev
• What is the yearly sales distribution for all
  products together?
• Expected Demand
• Std Dev

15
Polysar International Survey of managers (Q6, p.
55) ???
1 Month 1 Year
3? in Polysar 3? in Polysar
Family 15 8
SKU 50 ---
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Make-to-Stock Environment (MTS)

• Key focus is MAINTENANCE of FGIfinished goods
  inv.
• TRACKING of demand by locationinseguire la
  domanda così come dislocata throughout the supply
  chain is an important activity.
• Key issue is HOW, WHEN, HOW MUCH, to REPLENISH
  STOCK at a specific location (physical
  distribution concern).
• Firms employ distribution centers, warehouses,
  and even vendor-managed inventory inside their
  customers location.

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Make-to-Stock Environment (Cont) MTS

• Managers require information on the INVENTORY
  STATUS in the various locations, relationships
  with transportation providers, and estimates of
  demand by location and item (forecasting).
• Satisfying customers requires to BALANCE the
  level of inventory against the level of service
  to the customers. A trade-off between the
  inventory costs and the level of service must be
  made.
• IMPROVEMENTS can be made by having better
  knowledge of demand, rapid transportation
  alternatives, speedier production, more
  flexibility

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Assemble-to-Order (ATO)

• The primary task of Demand Management is to
  DEFINE THE CUSTOMERS ORDER in terms of
  alternative components and options.
• It is important that they be COMBINED into a
  viable (realizzabile) product in a process known
  as configuration management.
• One of the capabilities required for success is
  ENGINEERING DESIGN that enables as much
  flexibility as possible in combining components,
  options, and modules into the finished products.

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Assemble-to-Order (ATO) (Cont.)

• In this environment the independent demand for
  the assembled items is TRANSFORMED into dependent
  demand for the parts required to produce the
  components needed.
• The inventory that defines customer service is
  the inventory of COMPONENTS not finished
  products.
• The number of finished products is usually
  substantially greater than the number of
  components that are combined to produce the
  finished product (Example).
• Total Combinations N1 N2 N3 . . . Nm

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Make-to-Order (MTO)

• MOVING THE CUSTOMER decoupling point to raw
  material or even suppliers reduces the scope of
  dependent demand information.
• The task of demand management in this environment
  is to COORDINATE INFORMATION on customers
  product needs with engineering.
• Demand management now includes determining HOW
  MUCH ENGINEERING CAPACITY will be required to
  meet future customer needs.

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Make-to-Order (MTO) (Cont.)

• In these environments, suppliers capabilities
  may limit what we are able to do, so COORDINATION
  with them is essential.
• This span of involvement from customer to
  supplier gives rise to the term supply chain (or
  demand chain) and
• The coordination of activities along the supply
  chain is referred to as supply chain
  management.(in effetti la def. di SC può essere
  più generale e si applica anche allATO)

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Providing Appropriate Forecast Information ???

• A Forecasting Framework
• Level of product aggregation (aggregate forecasts
  are more accurate)
• Time frame (monthly, quarterly, etc.) (longer
  time frame forecasts are more accurate) there
  are limits to this
• DM forecasts are short term and tactical whereas
  strategic forecasts are long term and usually
  more expensive.

23
Information Use in DM ???

• CRM Individual customer data is collected by
  Customer Relationship Management software.
• In MTS firms, the customer information at this
  level can help discern early demand and mix
  trends.
• In MTO/ATO, CRM can be used to develop similar
  insights into customers. Data can used to develop
  make-to-knowledge plans on an individual customer
  basis.

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Forecasts for Strategic Business Planning ???

• Are used for long term broad based forecasts
  capital expansion, new product line, merger or
  acquisition decisions.
• Usually use causal models and regression analysis

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Forecasting for DM

• The forecasts are AGGREGATED to the product
  family level and from a few month horizon to
  about a year.
• If there is domain information such as customer
  plans that can be gleaned through conversations
  with directly customers, this information should
  be used by. These are CRM (Customer Relationship
  Management) activities.
• Often very precise calculations can be made of
  expected demand, based on future events.

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E? Forecasting Concepts (tecniche)

• Moving Averages Forecasting (pag. 33)
• Exponential Smoothing Forecasting(p. 34)
• Evaluating Forecasts (Bias (mean error) MAD
  (Mean Absolute Deviation) ) (pag. 36)
• Using the forecasts (aggregation) (pag. 39)
• Pyramid Forecasts (pag. 40)

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Concluding Principles

• Data capture must not be limited to sales but
  should include domain info such as knowledge,
  trends, systems performance
• Forecasting models should not be more complicated
  than necessary. Simple models work just as good.
• Forecast from different sources must be
  reconciled and made consistent with firm plans
  and constraints.

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Concluding Principles

• Input data and output forecasts should be
  routinely monitored for quality and
  appropriateness.
• Information on sources of variation should be
  incorporated into the forecasting system.
• Forecast from different sources must be
  reconciled and made consistent with firm plans
  and constraints.