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.

7. 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

9. 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

10. 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.

11. 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.

12. 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?

13. 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… • @ $10/forecast… Savings $???

14. 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) ???

16. 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 customer’s location.

17. 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

18. Assemble-to-Order (ATO) • The primary task of Demand Management is to DEFINE THE CUSTOMER’S 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.

19. 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

20. 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.

21. 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 all’ATO)

22. 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.

24. 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

25. 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.

26. 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)

27. 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.

28. 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.