basics of demand management for idiots

DEMAND

MANAGEMENT

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For

Idiots


What is Demand ?

In simple economic terms, DEMAND is something which represents the customer’s desire and readiness to

spend for getting a particular service or product.

DEMAND SUPPLY

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Types of Demand

Individual Demand Market Demand

Perishable goods Demand Non-Perishable goods Demand

Organisational Demand Industrial Demand

Autonomous Demand Derived Demand

Long term Demand Short term Demand

Types of Demand in Economics

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Types of Demand in Supply Chain

PULL Demand

A demand is known as Pull demand when you receive it straight from your customers. If a customer likes a

product , he/she is directly going to go the outlet and ask for the product directly by taking it name.

Example – Customers interested to buy ‘X’ company’s spare parts ,directly contact them, specifying which

product they want to purchase.

PUSH Demand

A demand is known as Push demand when the product’s demand has been created by the efforts of the

manufacturers.

Example – Producers of ABC raw materials promote their newly launched spare parts for sale to the distributors.


What is Demand Management ?

Demand Management

Forecast

Plan

Manage

1

2

3

DEMAND for services and products


Why is Demand Management needed ?

To come up with a manufacturing plan of action – balancing demand and supply.

To get a real time image of the quantity of product that needs to the manufactured to meet the supply.

Helpful in getting a sales plan accepted and synchronised by all associated units of supply chain.

Sales Plan Final Product

Raw Material A Raw Material B Raw Material C

Production

Unit

To get an understanding of forecasting the future demand.


Components of Demand Management

Demand

Management

Marketing &

Sales PlanDemand Forecasting

Resource

DistributionNew Product Launch

Constraints for

Product movement

inside factory

Service

expectation

of consumer

Inventory Level

Maintenance

Commitments

made to customer


Lack of Demand Management

Financial loss in terms of Business.

Underutilisation of company’s resources.

Dissatisfied customers and unstable suppliers.

High surge in cost of production.

Earning Opportunities lost in business.


Customer is an integral part of Demand Management – Why ?

What product is

needed ?

What quantity is

needed ?

What is the

product needed ?


Sources of Demand

Internal Customers -

Employees

Promotional Team

Sales Team

Customers


Types

of

Demand Patterns

Horizontal01

Trend02

Seasonal03

Cyclical04

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Demand Patterns

Horizontal

Horizontal Pattern – The entire demand hovers around a constant mean figure throughout for a period.

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tity

Time

Example : daily use items such as Soap, basic food products.


Demand Patterns

Trend

Trend Pattern – The entire demand line shows a systematic increase/decrease over a period of time.

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tity

Time

Example : New mobile phones launched in the market.


Demand Patterns

Seasonal

Seasonal Pattern – The entire demand line shows an almost repetitive pattern in days and months or a

particular season.

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tity

Time

2015

2016

Example : products like umbrella, sunscreen lotion, winter care products.


Demand Patterns

Cyclical

Cyclical Pattern – The entire demand line shows increase or decrease in demand over a considerable

period of time say months or years.

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Time

2000 2005 2010 2015

Example : Fashion products and designs


Demand Patterns

Random

Random Pattern – The entire demand line shows an almost un predictable demand data which does not

show any sequence or cycle.

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tity

Time

Example : high end cars for the elite and niche category people.


DEMAND


Independent Demand

Independent Demand Dependent Demand

It is a demand which is important but can’t be

calculated.

It is not related to demand for other things.

Example : Demand for bicycles in New York City

from June 2017 to September 2017.

It is a demand which can be calculated from the

demand of the parent product.

It is caused by an independent demand.

Example : Demand for number of tyres, cycle

frames, seats, helmets depend on the demand for

bicycles.

If demand is for 2,000 bicycles

Then

Cycle tyres= 2,000 X 2 = 4,000 units.

Seats = 2,000 X 1 = 2,000 units

Helmets = 2,000 X 1 = 2,000 units


What impacts the Demand

pattern’s stability ?

How long is the product available in the market ?


Calculation of Correct Demand

Actual Demand Actual Sales

Cancelled Orders


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What are Forecasts ?

Forecasts are predictions based on certain analysis of data that results in a calculative projections of the

expected results in the future.

What is common with all Forecasts ?

01

02

03

04

They often deviate from the actual result.

They always include a room for estimate of error in judgement.

They are more closer to the reality when predicted for immediate future.

Forecasts for group of products is more accurate than individual products.23

What is Demand Forecast ?

Demand forecasts are estimates of what the

consumers would want at a particular period of

time and a place.

The Demand forecasts are done by considering

the past trends, gathering data on consumer

behaviour and various other factors which

influence the decision of the consumer at a give

point of time.

The data can be collected both internally and

externally for the demand forecasting process by

an organisation.


Things to be considered while forecasting demand - 1

Inputs from

the market

Changes in the

PESTLE

Shift in

Market Demand


Things to be considered while forecasting demand - 2

Determination of

Market Size

Scope in the

market

Understanding the

reach of product

and the sales

team’s might


Fundamentals of Forecasting

Understand Basic Features of Forecasting

Figure OutWhat should be Forecasted?


Features of Forecasting

01

02

03

04

05

Forecasts have a tendency to go wrong.

Avoid forecasting what you can measure real time.

Focus on Group Forecasts.

Forecasts Durations – The closer ,the better.

Two extreme points should be set in Forecasts.


What should be Forecasted?

01

02

03

04

Stock of parts of a parent product.

Stock of parent products.

Distribution Channels.

Multiple parent products using same raw materials.


Types of Demand Forecasts

Short Term Forecasts

Medium Term Forecasts

Long Term Forecasts

Short Term Forecasts are made for a week to few weeks maximum. These are useful for

daily inventory planning, workforce and labour distribution, production planning.

Medium Term Forecasts are made for one month to seven eight months. These are useful

for sales and marketing planning, capital budget planning, manufacturing unit expansion,

training of work force etc.

Long Term Forecasts are made for one to five years in general. These are useful for

incorporating major changes in the business and the finances associated with it. They

have a high impact on the financial position and are done on trends and statistical

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Importance of Forecasts in Demand Management

Capital Acquisition from

Various sources.

Labour – full time and part

time requirements

projections.

Feasibility of new product

launch

Inventory level

Maintenance

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De

ma

nd

Fo

re

ca

sts

Getting new

Machines

Inventory

Management

New Product

Launch

Workforce

Training

Getting new machines : Forecasts help in deciding whether

an investment in new machinery is required.

Inventory Management: Forecasts help in maintaining

inventory in warehouse specially with bigger lead times.

New Product Launch : helps in to decide whether a

particular new product should be launched at a particular period

of time.

Workforce Training : helps in to train full time and part time

workers based on the skill set requirements of the upcoming

projects.

Use of Forecasts in Demand Management


Forecasts Steps in Demand Management

Analyse the Data

Choose the forecasting methodology.

Project the forecast using the data.

Check for closeness with reality and

continuously fine tune the processes.

Level of PLC

Seasonality angle

Trends

Cycles

Which forecasts are needed ?

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Forecast can go wrong

Wrong estimation of

Timings

Wrong estimation of

size or importance

Over estimation of

Sale of ice creams at

night after 10 PM in

winter night

Less estimation of

Sale of popcorn in a

multiplex that is

screening a hit movie.


Forecasting Errors

Forecasting Errors are the difference between the prediction and the actual happenings during a particular

period of time.

Example –

Forecast for pizza in LA from 10:00 Pm to 11:00 Pm was 120

units of Pizza.

Actual Demand was 170.

Forecast Error = 170 – 120 = 50 units of Pizza

Actual Demand

Forecast


What causes Forecast Errors ?

Sudden shift in trends, tastes and preferences.

Not decoding ‘what the customer wants’.

Avoiding external factors which can have a big impact like weather etc.

Delay in taking strategic decisions.

Not understanding the past trends.

Forecast Errors


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Need to consider the forecast errors while making demand forecasts

Why ?

Helps in making better decision.

Product A has a normal demand of 1000 units with very less starting stock say 100m units. The minimum

stock to be maintained is 500 units at a given time.

Assuming that there is a normal demand - An forecast should be minimum for 1600 units production in

advance to meet the demand.

At max 100 units extra would lie idle in this case every day which would be helpful to meet contingencies , if

any.


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Estimates for groups in Forecasts are likely to be more correct – When ?

Consider

It is going to snow on 10th Jan. It is going to snow between 10th Jan to 15 Jan.

Which one of them is more likely to happen ?


Estimates for Forecast is likely to be more correct in immediate future

For a local business, Production of a certain

number of umbrellas for the neighbourhood

depends upon the rain projection of the

weather department for the next three days.

Current sales : 100 umbrellas a day

Current weather forecast : 5 days continuous rain (99 %

chances due to low pressure in the ocean.

Estimate number of people needing umbrellas = 1

umbrella minimum per family *300 families.

There is every chance that the sales will go up

dramatically in the next three days..

Accurate

Forecasts


Calculation of Forecast Error

Forecast Error = Actual Demand – Forecasted demand for that particular period.

For example, if Forecasted demand was 150 units but

actual demand was 170 units , it means that the

forecaster could not judge the true potential of the

saleability of the product.

E(t) = Y(t) – Y(t/t-1)

E(t) = Forecast Error

Y(t) = Current Observation

Y(t/t-1) = forecast of observation based on earlier

observations.


More to Come …. Very Soon…


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