Demand Management
Dr. Ron Lembke
SCM 461
Role of Demand Management
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Collect information from all demand
sources
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Customers
Spare parts
Negotiate and Confirm shipping dates,
quantities
 Confirm order status, communicate
changes

Different Environments
Factory to customers – plant very aware
of customer needs
 Factory to DC – stable replenishment plan
 Plan vs. Forecast:
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Forecast is what you think demand will be like
Plan is how you will respond to demand
“A manager cannot be held responsible for not getting a
forecast right.”
How are you going to respond to changes in demand?
You have control over the plan and execution, not
demand
Rain forecasted? You decide to bring umbrella or not.
Planning a BBQ: 300 people? 500? Somebody decides
Independent vs. Dependent Demand
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Feeding manufacturing, demand for parts is
dependent on manufacturing plan
Sales to customers are independent of our
(production) activities. # snowboards
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# tops depends on # boards to be made
Customer order decoupling point: when control of
timing passes from customer to us
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Make to stock – Finished goods
Assemble to Order – WIP
Make to Order – Raw Materials
Engineer to Order - suppliers
Make to Stock
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Customers buy finished, generic product
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McDonalds’ heat lamp days
Triggers signal to make more
 Use warehouses, DCs to fulfill demand
 Maybe VMI?
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Assemble to Order
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Define customer’s order in terms of alternative
components and options
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Subway, In-N-Out
Configuration management: combine options
properly into a buildable final product
Flexibility in combining components, options, and
modules
Combinations:
31 ice cream * 4 sauces * 12 sprinkles = 1,488
Homework
Figure out the total number of
combinations of some (one) thing you like
to eat or drink:
 Go there, write up # of options, and spell
it all out for me, how many there are
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# lattes: soy, decaf, etc.
Ice cream
Pizza
Beer samplers
Burritos
Burgers
Make/Engineer to Order
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No stock components to assemble
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Cooking at home – could make any of the
standard things you usually make: burger,
pizza, chili, etc., etc.
Include Engineer to Order
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Tell me what you’d like – wedding dinner
Significant design element in order
creation
 Don’t know possibilities of what customers
might buy
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What do you think?
Which method is best?
 What kinds of uncertainty are involved in
each?
 What determines customer service in
each?
 What is the decoupling point in each
system?
 What kinds of capacity do we need in
each?
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Communication with Depts.
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SOP – give forecasts, get prod. Plans
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Master Production Scheduling
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Capacity: material (MTS), labor (MTO)
Timing of deliveries & production
Detailed order info to MPS
Status of each order
Figs 2.5, 2.6
Resource
Planning
Sales and
Operations
Planning
Master Production
Scheduling
Demand
Management
Information Use
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Make to Knowledge
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Use EDI, POS data to know what your
customers are going to be ordering
(Not forecasting)
Wal-Mart and Philips
 Forecast based on:
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Sales?
Demand?
Shipments?
Forecasting Framework
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Fig. 2.7, p. 30
Aggregating Demand
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Long-term, or product-line forecasts more
accurate than short term or detailed
forecasts
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Monthly: Avg = 20, std dev =2
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Annual: Avg = 20 * 12 = 240
Std. Dev = 2 * sqrt(12) = 6.9
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95%: 16-24 which is +/- 20%
95%: 226-254, which is +/- 5.8%
Easier to forecast demand for components
than for sales of particular car configurations.
Aggregating Demand
Individual item forecasts must add up to
correct total
 Individual item percentage of total
probably constant
 Pyramid forecasting – bring things into
alignment
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Force people to accept higher targets without
“owning” them
Predicting
Demand
Shared components
Grand
Prix
Grand
Am
Grand
Prix
End of Pontiac
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Last American-produced Pontiac G6
– Nov. 25, 2009
Canadian market-G3 Wave, GM
Daewoo, S. Korea, Dec. 2009