Managing Business Processes:
Demand Management
Cheng Li, Ph.D.
California State University, Los Angeles
July 2000
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SALES PLANNING PROCESS
Review Assumptions
Convert assumptions
into numbers
Sales Plan by Product
Family
Measure Actuals
against Plans
Sales Plan by Item
Proactive Sales
Plans
Forecasting
• Forecasting Techniques:
– based on history
– based on causal relationships
– based on people’s opinions
Strategies for Managing Demand
•
•
•
•
•
Partitioning Demand
Offering Price Incentives
Promoting Off-Peak Demand
Developing Complementary Services
Use Reservation Systems and Handling
Overbooking Problem
Managing Business Processes:
Capacity Management
Capacity Planning Strategies
• Level Strategy
• Chase Strategy
• Mixed Strategy
Workforce Scheduling
• Capacity of i  Requirement of i
– What is the requirement when there is
uncertainty?
– What is the basic time window?
• Capacity constraints
– availability constraints
– work schedule constraints
Workforce Scheduling
• Solution Techniques
– queuing theory
– linear programming
– spreadsheet
Linear Programming
Minimize: Total Cost
Subject to:
Capacity availability
Work schedule constraints
Capacity requirements
etc.
Issues in Scheduling
• Overlapping shift schedules
• Part-time workers
• Days-off schedules
Inventory Management
• What is inventory?
– delay in work flow
• Why keep inventory?
–
–
–
–
Reduce ordering cost
Deal with demand uncertainty
Deal with uncertainty in the work process
etc.
Input/Output Analysis
• Change in inventory = Input - Output
• Average throughput time is proportional to
the level of inventory.
Flow and Inventory
Input flow of materials
Inventory level
Scrap flow
Figure 11.1
Output flow of materials
MRP
• A general framework for MRP
• Inputs: Bill of Materials, Inventory Files
and Master Production Schedule
• MRP Processing
A General
Framework
of MRP
Aggregate Plan
Master Production
Schedule
MRP
Capacity Requirements
Planning
Production Scheduling
Master Production Schedule
Week 1 2
3
M1
23
M2
23
10 10
4
5 6
7
23
23
10
8
Bill of Materials
C (1)
Seat
subassembly
H (1)
Seat
frame
Figure 15.10
J (4)
Seat-frame
boards
I (1)
Seat
cushion
Inventory Files
•
•
•
•
•
On-Hand
Open Orders
Lead Times
Vendor Information
Quality records, etc.
MRP Explosion
Item: Seat subassembly
Lot size: 230 units
Week
Lead
time: 2 weeks
1
2
3
4
5
6
7
8
Gross
requirements
150
0
0
120
0
150
120
0
Scheduled
receipts
230
0
0
0
0
0
0
0
117
117
117
227
227
77
187
187
Projected
on-hand
inventory
37
Planned
receipts
Planned order
releases
Figure 15.11
230
230
230
230
MRP Explosion
Item: Seat subassembly
Lot size: 230 units
Week
Lead
time: 2 weeks
Gross
requirements
1
2
3
4
5
6
7
8
150
0
0
120
0
150
120
0
Planned
receipts
230
Planned
order
releases
230
230
230
Usage quantity: 1
Usage quantity: 1
Item: Seat frames
Lot size: 300 units
Item: Seat cushion
Lot size: L4L
Week
Lead
time: 1 week
1
2
3
4
5
Gross
requirements
0
230
0
0
230
Scheduled
receipts
0
300
0
0
0
Week
6
0
7
0
8
0
Lead
time: 1 week
1
2
3
4
5
Gross
requirements
0
230
0
0
230
Scheduled
receipts
0
0
0
0
0
Projected
on-hand 40
inventory
Projected
on-hand
inventory
Planned
receipts
Planned
receipts
Planned
order
releases
Planned
order
releases
Figure 15.11
0
6
7
8
0
0
0
Issues in MRP
• Two basic concepts:
– Net requirements
– Lead time offset
•
•
•
•
Lot size
Safety stock/Safety lead time
Inventory records
Validity of the schedules
JIT and Inventory Management
• Inventory as delay in work flow
• Why inventory?
–
–
–
–
–
Dealing with fluctuations in demand
Dealing with uncertainty
Reducing transaction costs
Taking advantage of quantity discount
Hedging against inflation, etc.
JIT and Inventory Management
• Inventory costs:
–
–
–
–
Holding cost
Long response time
Low flexibility
Slow feedback in the system
JIT and Inventory Management
• The objective of JIT:
– General: reduce waste
– Specific: avoid making or delivering parts
before they are needed
• Strategy:
– very short time window
– mixed models
– very small lot sizes.
JIT and Inventory Management
• Prerequisites:
– Reduce set up time drastically
– Keep a very smooth production process
• Core Components:
– Demand driven scheduling: the Kanban system
– Elimination of buffer stock
JIT and Inventory Management
• Core Components: (cont.)
– Process Design:
• Setup time reduction
• Manufacturing cells
• Limited work in process
– Quality Improvement