Manufacturing
Planning and Control
MPC 6th Edition
Chapter 2
McGraw-Hill/Irwin
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Demand Management
The Demand Management (DM)
process determines how a firm
integrates information from
customers (both internal and
external) into the MPC system.
Activities include demand
determination, converting customer
orders into delivery promises, and
balancing supply with demand.
2-2
Agenda
What is DM?
Benefits of DM
Role of DM
Shaping DM to match the manufacturing environment
Information and DM
Day-to-Day DM
Principles
2-3
Demand Management in MPC
Demand
management
provides a link to
Demand
management
functions
The marketplace
Information gathering
Sister plants
Communicating with
customers
Warehouses
Other internal and
external customers
Identifying all sources
of demand
2-4
Resource
Planning
Sales and
operations
planning
Demand
management
MPC Boundary
Demand Management in the
MPC System
Marketplace
(customers
and other
demand
sources
Master
production
scheduling
FRONT END
2-5
Planning and Control

Demand management coordinates
demand quantities and timing with the
planning and control activities of the
company
Planning occurs mainly in the SOP
module
 Control determines how capacity will
be converted into products

2-6
Execution
The company executes the plan as
actual demand information becomes
available
 The control function determines how
the plans will be modified to
accommodate forecast errors and
other changes in assumptions
 Most control functions are located in
the MPS module

2-7
Forecasts are estimates
of what might occur in
the marketplace
Plans specify how the
firm will respond to
these forecasts
Forecast
versus Plan
The plan may look
significantly different
from the forecast–
because of other
considerations (staffing,
capacity, etc.)
Managers can’t be held
responsible for forecast
errors, but should be
held responsible for
failing to execute the
plan
2-8
Independent versus
Dependent Demand

The source of demand determines its
type
Independent – Customer demand that
is not directly influenced by the actions
of the firm (e.g. customer orders)
 Dependent – Demand that is driven by
the plans and activities of the firm (e.g.
components, warehouse demand)

2-9
Demand Management and
MPC Environment

DM must conform to the strategy of
the firm, capabilities of manufacturing,
and needs of customers


These define the MPC environment
MPC environment is defined by
customer order decoupling point
The point where demand changes
from independent to dependent
 Alternatively, order penetration point

2-10
Make-to-Stock
Customer demand is filled from
finished goods inventory (cosmetics,
grocery items)
 Key focus of demand management is
maintenance of finished goods
inventories
 Physical distribution is a key concern

2-11
Assemble-to-Order
Customer requirements are met by a
combination of standard options
(personal computers, fast food)
 Primary task of demand management
is to define the customer’s order in
terms of components and options
(configuration management)

2-12
Make-to-Order
Items built to customer specifications,
starting with raw materials (airplanes)
 Primary task of demand management
is gathering information about
customer needs and coordinating with
manufacturing

2-13
Engineer-to-Order
Firm works with the customer to
design the product, then produces the
product, starting with raw materials
(ships, bridges)
 Primary task of demand management
is gathering information about
customer needs and coordinating with
engineering and manufacturing

2-14
MPC Environments
Inventory Location
Suppliers
Raw
materials
MPC Environment
Maketo-Stock
Engineerto-Order
Finished
goods
Independent
Assembleto-Order
Maketo-Order
Work-inprocess
Dependent
Independent
Dependent
Decoupling
Points
Independent
Independent
Dependent
Dependent
2-15
Key Demand Management
Tasks by Environment
Tasks
Make-to-Stock
Assemble-toOrder
Make-to-Order/
Engineer-toOrder
Information
Provide
forecasts
Configuration
management
Product
specifications
Planning
Project
inventory levels
Determine
delivery dates
Provide
engineering
capacity
Control
Assure
customer
service levels
Meet delivery
dates
Adjust capacity
to customer
needs
2-16
Demand Management
Communication Activities
Connection
Make-to-Stock
Assemble-toOrder
Make-to-Order/
Engineer-toOrder
SOP
Demand
forecasts
Demand
forecasts,
product family
mix
Demand
forecasts,
engineering
detail
MPS
Actual demand
Mix forecasts,
actual demand
Final
configuration
Customer(s)
Next inventory
replenishment
Configuration
issues, delivery
date
Design status,
delivery date
2-17
Customer Interactions

Demand management converts
customer orders into detailed MPC
actions
Make-to-Stock–resupply of inventory
 Assemble-to-Order–conversion of
customer request to promise date
 Make(Engineer)-to-Order–conversion
of customer request to product
specifications and promise date

2-18
Information Use in DM
Make-to-Knowledge–replacing
forecasts with knowledge of customer
requirements
 Information channels (EDI,
information sharing, etc.) enhance
knowledge of customers’ inventory,
requirements, and plans

2-19
Data Capture and
Monitoring

Data is needed in two categories
Overall market data–needed for sales
and operations planning
 Detailed product mix–used for master
production scheduling and customer
order promising


It is important to capture actual data
wherever possible
2-20
Data Capture and
Monitoring
Data is needed in two categories
Overall market
data–needed for
sales and
operations
planning
It is important
to capture
actual data
wherever
possible
Detailed product
mix–used for
master production
scheduling and
customer order
promising
2-21
Customer Relationship
Management
Make-to-Stock–capturing customer
demand can help determine demand
and mix trends
 Assemble-to-Order/Make-to-Order–
customer information can provide
information concerning design and
mix preferences

2-22
Outbound Product Flow
Physical distribution of products is
planned using information from the
demand management function
 Short-term transportation schedules
are developed using information such
as customer delivery promise dates,
inventory resupply shipments,
interplant shipments, etc.

2-23
Demand Management
Elements

Organization–responsibility for DM activities can
be distributed throughout the firm


Monitoring–data must be accurate, timely, and
appropriate


Flexibility requires rules to avoid conflicts and
unintended consequences
Communication is critical when inputs or outputs
change
Balancing supply and demand–intelligence on
actual conditions provides the basis for changes to
plans
2-24
Collaborative Planning,
Forecasting, and
Replenishment (CPFR)
Designed to improve competitiveness
by facilitating communication between
suppliers and retailers
 Goal: reducing variance between
supply and demand
 Developed by the Voluntary
Interindustry Commerce Standards
Association

2-25
CPFR Steps
1
2
3
4
5
• Establish collaborative relationship–may
require process redesign
• Create joint business plan
• Create sales forecast
• Identify exceptions to the sales forecast
• Resolve/collaborate on exception items
2-26
CPFR Steps
6
7
8
9
• Create order forecast
• Identify exceptions to order forecast
• Resolve/collaborate on exception
items
• Generate order
2-27
Principles
Demand management systems and
procedures must be in alignment with
the market environment
 All product resource demands must
be identified and accounted for when
forecasting
 Data capture must include not only
sales, but also knowledge, trends,
systems performance, and demand
management performance

2-28
Principles
Implementing CPFR can lead to
important organizational and business
process improvements for both the
customer and supplier
 The CPFR process can improve
customer service, sales, inventory,
and margin performance for both the
customers and supplier in a supply
chain

2-29
Quiz – Chapter 2

Demand Management (DM) includes which of the following activities?
• Forecasting
• Product shipping
• Entering customer orders



The customer order decoupling point is best defined as ____________
In an Assemble-to-Order environment, the most likely point where
customer order decoupling would take place is ______________
Sales and Operations Planning can be completed at which of the
following levels
• Product Family
• Region
• Organizational Unit

The main goal of a Collaborative Planning, Forecasting, and
Replenishment (CPFR) process is to _________________
2-30