demand management.pptx

8/16/2019 Demand management.pptx

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Demand management

Demand management is the supply chain managprocess that balances the customers’ requirementhe capabilities of the supply chain. With the rightprocess in place, management can match supply demand proactively and execute the plan with mi

disruptions. The process is not limited to forecastIt includes synchroniing supply and demand, inc!exibility, and reducing variability.


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#ost customer$driven variability is unavoidable, bof the goals of demand management is to eliminamanagement practices that increase variability, aintroduce policies that foster smooth demand pat

What are practices that increase the demand

variability %%%


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&ull whip e'ect

•

It occurs when slight demand variability is magni(ed asinformation moves bac) upstream.

• Distorted information or the lac) of information, such asinaccurate demand data or forecasts, from the customecan ripple bac) upstream through the supply chain and demand variability at each stage.

• This can result in high bufer inventories, poor custoservice, missed production schedules, wrong capaplans, inecient shipping, and high costs. It occursslight to moderate demand variability becomes magni(demand information is transmitted bac) upstream in th

chain


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• The bullwhip e'ect is created when supply chain mema)e ordering decisions with an eye to their own sinterest and*or they do not have accurate demandinformation from the ad+acent supply chain membe

each supply chain member is uncertain and not conabout what the actual demand is for the succeedingmember it supplies and is ma)ing its own demand fthen it will stoc)pile extra inventory to compensate uncertainty

•

owever, if slight changes in demand occur, and thdistributor does not )now why this change occurredthe distributor will tend to overreact and increase itdemand, or conversely reduce its own demand too demand from its customer unexpectedly drops. Thisan even greater overreaction by the manufacturer w

supplies the distributor and the suppliers who suppl


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-upply chain management as an inteof processes

-upply chain management is the integration of )ey bprocesses from end user through original suppliers thprovides products, services, and information that addfor customers and other sta)eholders


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-upply hain /orum identi(ed following eight )eprocesses that need to be implemented within a(rms in the supply chain 0$

•

ustomer 1elationship #anagement• ustomer -ervice #anagement

• Demand #anagement

• 2rder /ul(llment

•

#anufacturing /low #anagement• -upplier 1elationship #anagement

• 3roduct Development and ommercialiation

• 1eturns #anagement


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Demand Management as aSupply Chain ManagementProcess


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demand management

The demand management process has both strategic and elements.

In the strategic process, the team establishes the structurmanaging the process.

The operational process is the actualiation of demand m

Implementation of the strategic process is a necessary (rsintegrating the (rm with other members of the supply chaithe operational level that the day$to$day activities are exec

The interfaces might ta)e the form of a transfer of data tha

processes require, or might involve sharing information or

another process team. " process team comprised


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" process team comprised of managers from several including mar)eting, (nance, production, purchasing logistics, leads both the strategic and operational pro The team might also include members from outside texample, the team might include customers as well a

representatives from a )ey supplier or a third$party p


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Determine Demand Management

Goals and Strategy

The demand management process is focused on predicting demand and determining how that demand can be synchroncapabilities of the supply chain.

The process team must have a broad understanding of the (strategy, the customers and their needs, the manufacturingand the supply chain networ). In order to accomplish this, in

required from individuals in functions as well as the customemanagement and supplier relationship management proces

With this understanding, the process team can have a high$discussion about the goals and the focus of the process, whacross di'erent (rms and industries. /or instance, telecommindustry with focus on increasing !exibility due to unpredict


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Determine /orecasting 3rocedures

In the second sub$process, the process team develops a piece of demand management4 that is, forecasting. The tneeds to select the appropriate forecasting approaches.

This includes determining

• The levels and time frames of the forecasts needed throthe (rm 0$

Di'erent parts of the (rm might need di'erent levels of tforecast. /or instance, manufacturing planning might req-56$level forecast. Transportation planning, on the other might need a forecast aggregated at the product$family ldisaggregated by region.


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Identifying the sources of data 0$

7ext, the team determines the sources of the data requirgenerate each forecast. These might include historical dapro+ections, promotion plans, mar)et share data, trade inmar)et research. In order to determine how to use these team should understand the value of the information from

source4 for instance, determining how good each source predicting demand.

The team might also consider

• ollaborative 3lanning, /orecasting and 1eplenishment

• :endor #anaged Inventory 8:#I9


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ollaborative 3lanning, /orecasand 1eplenishment 83/19•

It is a process for two or more companies in a suchain to synchronie their individual demand forin order to develop a single plan for meeting cusdemand.

• With 3/1, parties electronically exchange a serwritten comments and supporting data, which inpast sales trends, point$of$sale data, on$hand invscheduled promotions, and forecasts. This allowparticipants to coordinate +oint forecasts byconcentrating on di'erences in forecast number


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•

They review the data together, compare calculaand collaborate on what is causing discrepanciethere are no exceptions they can develop a purcorder and ship. 3/1 does not require ;DI4 data sent via spreadsheets or over the Internet. 3/1actual collaboration because both parties do the

and both parties share in (xing the problems.• -haring forecasts in this type of collaborative sy

can result in a signi(cant decrease in inventory for both the manufacturer and distributor since ito reduce the


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De(ning forecasting procedures There are many methods from which to choose, fromquantitative, such as time series methods, to more p

driven, such as focus groups and the Delphi approach

In one of the companies managementsegments products according to dem

variability and demand v

in order to ma)decisions about the appropriateforecasting approaches.


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"fter the appropriate forecasting approach is detethe team selects the speci(c forecasting method.ma)ing this decision, it is important for the team understand the nature of the demand. /or instancdemand is seasonal, they will want to select a me

that incorporates seasonality.


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3lan normation !low

2nce the team decides on the method of forecasting sources of data, they plan the information !ow4 that is

• they determine the sources of data,

• how this input data will be transferred, and

• what output needs to be communicated to whom.

Input to the forecasting process will li)ely come from functions, the customer relationship management proand in a 3/1 environment, the customers themselve

The forecasts are communicated internally to the othprocess teams that are a'ected by them.


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In addition, the (rm needs to determine what data wshared with other members of the supply chain.

/or instance, in a 3/1 environment, -56$level forec +ointly developed with next$tier customers.

#anagement might decide to share these forecasts iaggregated form with suppliers, perhaps including )etier suppliers. /or example, Wendy’s International, a service restaurant chain, shares its forecasts with bo

lettuce processors and the lettuce growers. The team also needs to consider if information systebe developed or enhanced in order to e>ciently tranappropriate information.


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onsiderable e'ort is often required to integrate systembetween (rms.

ompanies li)e #oen Inc., the world’s largest manufactplumbing products, have developed applications to sharforecasts, production schedules and inventory levels wit

supplier base through the Internet. " web$enabled applican be a (rst point of contact for status reports.

"s an extension to the information !ow, the team shouldconsider ways in which both the inputs and outputs of dmanagement can be used to de(ne the future business


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• The same information that is used in the demand m

process can be used to shape the mar)eting strategdirection the (rm ta)es.

• /or instance, analysing demand and forecast data management

• To plan the life cycle of products, including the deteof when to introduce new products and phase out eones.

• Data on where the bottlenec)s in the supply chain aused in con+unction with product pro(tability reportmanagement on its investment strategies.

Determine Synchroni"ation


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Determine Synchroni"ationProcedures

7ext, the team determines the

synchroniation procedures required to

match the demand forecast to the supply

chain’s manufacturing, supply and logistics

capabilities. /requently, this is referred to as

sales and operations planning 8-?239. "sshown in /igure , the synchroniation

requires coordination with mar)eting,

manufacturing and sourcing, logistics and

(nance.


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• When executed at the operational level, this synchroniationincludes examining the forecasted customer demand and dethe requirements bac) through the supply chain and not onlunderstanding the level of demand, but also the velocity at product is required at each touch point in the supply chain.

• The output of this synchroniation will be a single executionwill balance the needs and costs of manufacturing, logistics

the suppliers to meet anticipated demand. This execution pprovide the basis for the detailed manufacturing and sourcinis developed within the manufacturing !ow management prthrough manufacturing requirement planning 8#139, and thedistribution plan that is developed within order ful(llment thdistribution requirement planning 8D139.


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"t the strategic level, the team is responsible for dev

synchroniation procedures that will be used at the olevel, including who will be included in the synchroniprocess and the structure for how they will meet.

-ome (rms have a two$stage synchroniation procescross$functional team of managers will meet, for instmonthly, to develop an initial demand execution planare any unresolved issues from this meeting, they widirected to a meeting of upper$level managers who rand sign$o' on a (nal demand execution plan.


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•

2nce a (rm has an e'ective internal synchroniaprocess, management should consider integratinsuppliers and customers directly into it.

• /or instance, a beverage company includes intersuppliers in their monthly -?23 meeting. Thesesuppliers are under the company’s corporate umbut they are di'erent strategic business units anhave their own income statements and balance


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•

3art of determining the synchroniation procedude(ning policies about stoc)piling and allocatingis, where to stoc) inventory when supply is greademand, and how to reposition inventory when dis greater than supply.

• In the case of limited capacity and a product witseasonal demand, it might be necessary to rampproduction several months prior to the high demperiods#


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It is important to realise that di'erent product$lines migdi'erent synchroniation procedures. /or example, #oehas di'erent procedures for core, custom and new prodreason is that the focus of demand management changeach classi(cation of products. /or new products, the foattaining the most !exibility possible, as the demand of

products is the most uncertain. /or #oen’s core productmanagement is interested in driving the costs out sinceproducts are mature and competitive price pressure is hcustom products that are low$volume, the goal is assetoptimiation, which suggests an assemble$to$order syst


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Develop ContingencyManagement System

• "nother important component of the strategic dema

management process is developing contingency plarespond to signi(cant internal or external events thathe balance of supply and demand .

• /or example, how should the (rm react if a manufacfacility is unexpectedly shut down, or a port stri)e inthe !ow of raw materials% Determining reaction proprior to the possible events will allow management quic)ly in the case that one of these events occurs. addition, the process team should consider what wilthere is an interruption to any portion of data !ow tsupply chain due to system errors.


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•

This contingency management system should be daccordance with the expectations of the customersthe customer relationship management process, ainput from order ful(lment manufacturing !ow maand supplier relationship management. 2nce devecontingency plans need to be communicated to th

process teams.

D l ! $ M t


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Develop !ramewor$ o Metr

/inally, the team develops the framewor) of metrics tto measure and monitor the performance of the proc

sets the goals for performance improvement.

" uniform approach should be used throughout the (develop these metrics . The team should start by undhow demand management can in!uence )ey performmetrics that directly a'ect the (rm’s (nancial performmeasured by economic value added .

/igure provides a framewor) for examining these rela


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/igure provides a

framewor) for

examining these

1elationships.

It shows how demand

management can impact

sales, cost of goods sold,

total ;xpns ,inventory

Investment , other current

assets,

and (xed assets.


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"lthough these holistic metrics are a'ected by other ac

processes in the supply chain, the team responsible for management needs to estimate how this process impac(nancial performance. Doing so will help to +ustify futurinvestments in the process and to determine rewards foperformance.

2nce the team has an understanding of the impact thatmanagement can have on (nancial performance as mea;:", metrics need to be developed for the activities perthese metrics must be tied bac) to (nancial measures. Tprocess measures for demand management include fore

and capacity utiliation.

%he &perational Demand


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%he &perational Demand

Management Process

"t the operational level, the process team must execuforecasting and synchroniation as it was designed at

strategic level.


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Collect Data'normation (-

"t the strategic level, the data requirements for developing the determined, and the information systems were put in place to fa

data collection.• In order to collect the relevant data that were speci(ed in the s

process, the team must interface with the mar)eting function aorder ful(lment , customer service management, product devecommercialiation, and returns management processes

• 2rder ful(llment and customer service management processes

most relevant information on anticipated demand. The productand commercialiation process team provides information regarollout of new products. Data from the returns management prused for generating the forecast because it provides input to uthe actual demand. If a forecaster only uses sales (gures as a past demand, and does not consider what was returned, the fobased on in!ated numbers.

/orecast


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/orecast

• With all the required data in hand, the team develoforecasts. It is important that they trac) and analy

forecast error and incorporate this feedbac) to (neforecasting methods. This is an important componelearning process associated with good forecasting. at a global beverage company, managers examine errors and perform a root$cause analysis when errounusually large. This analysis involves tracing the s

unexpected demand 8or shortage of demand9 to separticular customer, brand, region, or product. 2nceis )nown, it is necessary to determine what the cauhow long the change in demand will last. This provistarting point for improving future forecasts.


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• The forecast provides one input for matching demand wsupply. This

synchroniation process follows the procedures determinestrategic level.

This is where the team turns the forecast into a demand eplan that is, a plan for how the (rm will meet the demand

In addition to the forecast, the team must consider capacthroughout the supply chain, (nancial limitations, and curinventory positioning 8including saleable product that is brepositioned as a result of returns9.


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• 6nderstanding the capacity limitations requires

loo) both upstream and downstream. Ideally, theshould )now both the capacity and the current ilevels for )ey members of the supply chain.

• omparing this information to the forecast will tewhat constraints are in the system. 2nce the con

are identi(ed, the team can wor) with the other teams to determine how to resolve the bottlenecallocate the available resources and prioritie de


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• "lthough most forecasting methods are focused determining the point forecast, calculating con(intervals can provide management with valuableinformation on which to base their decisions. 6sforecast error values, the team can calculate conintervals for the forecasts.

• /or instance, a manufacturing (rm might forecasdemand to be @AA units and the BC con(denceinterval to be EA to @FA units. This means they asure the actual demand will fall in this range.


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• In addition to the point forecast, this range couldshared with suppliers to provide information thacan use for planning, or even to negotiate availacapacity. #anagement can also use this informadetermine how much demand they want to meeto'er high customer service, they should produce

but if the cost of inventory or ris) of obsolescenchigh, they might choose to produce only EA. In oma)e this determination, the team needs to undthe (rm’s cost structure and strategic ob+ectives


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• In addition to supply and manufacturing constraints, th

might introduce a (nancial constraint. In turning the fora demand plan, the team might need to practice ris) m This is the practice of balancing ris) with (nancial rewais not (nancially feasible to meet all the demand, manamust decide how to most e'ectively allocate resources

• The team also develops a rough$cut capacity plan for a

products soon to be launched. "t #oen, Inc., managemdetermines existing capacities, but tal)s to )ey supplieunderstand how quic)ly they could respond if demand eforecast for a new product.


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• The output of the synchroniation sub process isdemand execution plan that includes aggregateproduction plans and inventory$positioning plansneed to be communicated internally and to )eymembers of the supply chain. Developing andcommunicating these plans requires interfaces w

customer relationship management, customer smanagement, order ful(llment, manufacturing !management, supplier relationship managemenproduct development and commercialiation pro

)educe *ariability and ncrease !le+ibility


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y y

#any people see variability as the enemy of planningto plan for the average, but it is the deviations from tthat cause problems. #anagers spend substantial timmoney dealing with the consequences of demand var There are two things managers can do to minimie thimpact of variability. 2ne is to reduce the variability ithe other is to increase the !exibility to react to it.


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• There are many sources of variability in the supply chain.

• 2ne of the most problematic is demand variability. #any masee demand as an uncontrollable input. demand manageme


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solutions. /or example, the team might wor) with the customrelationship management team and help customers better plapromotions, or implement scheduled ordering policies .

• The team might also (nd that internal practices are driving devariability, such as end$of$quarter loads. If the demand for neproducts is highly variable, they could wor) with the productdevelopment teams to implement controlled roll$outs where tproducts are introduced (rst in test mar)ets where demand pcan be evaluated.


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• Haining !exibility allows a company to better manag

system variability that cannot be eliminated both aand unanticipated variability. When a beverage compintroduced one of its new products, demand was mordouble the amount forecasted.

• The team should (rst determine how much !exibility

&ecause building !exibility into a system is often expimportant that the level of !exibility developed is conthe needs of the supply chain. To ma)e this determinprocess team needs to fully understand customers’ ndemand patterns, and the capabilities of the entire su

• This involves wor)ing with the other process teams withi


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• This involves wor)ing with the other process teams withi(rm, as well as with suppliers and customers to determinthere are opportunities to add !exibility into the supply cexample, the team might wor) with the manufacturing !management team to (nd ways to introduce postponemethe manufacturing process, implement agile manufacturipractices, or (nd ways to multi$source . They might wor)customer relationship management team to stratify custothat the (rm can be most responsive to a small set of )eycustomers, or wor) with the product development teamsstandardie materials.

• The team might wor) with the order ful(lment team to mchanges to the networ), such as reducing lead$times or icapacity at bu'ers. -olutions might also exist from withindemand management process, such as implementing :#


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• In order to (nd ways to increase !exibility and redvariability, the process team wor)s with the salesmar)eting and manufacturing organiations, custosuppliers.

Measure Perormance


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Measure Perormance

• /inally, the process team is responsible for meas

the performance of the process with the metricsdeveloped at the strategic level. These metrics ainternally to improve the process and are providthe customer relationship management team ansupplier relationship management team who wil

the (rm’s performance to the )ey members of thsupply chain and generate the customer pro(taband supplier pro(tability or cost reports


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demand management.pptx

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