1. Dr. Ron Tibben-Lembke SCM 461
Demand Management
Dr. Ron Tibben-Lembke
SCM 461

2. Role of Demand Management
Collect information from all demand sources
Customers
Spare parts
Negotiate and Confirm shipping dates, quantities
Confirm order status, communicate changes

3. Different Environments
Factory to customers – plant very aware of customer needs
Factory to DC – stable replenishment plan
Plan vs. Forecast:
Forecast is what you think demand will be like
Plan is how you will respond to demand
“A manager cannot be held responsible for not getting a forecast right.”
How are you going to respond to changes in demand?
You have control over the plan and execution, not demand
Rain forecasted? You decide to bring umbrella or not.
Planning a BBQ: 300 people? 500?

4. Independent vs. Dependent Demand
Feeding manufacturing, demand for parts is dependent on manufacturing plan
Sales to customers are independent of our (production) activities.
Customer order decoupling point: when control of timing passes from customer to us
Make to stock – Finished goods
Assemble to Order – WIP
Make to Order – Raw Materials
Engineer to Order - suppliers

5. Make to Stock Customers buy finished, generic product
McDonalds’ heat lamp days
Triggers signal to make more
Use warehouses, DCs to fulfill demand
Maybe VMI?
Tradeoff of more flexible manufacturing, faster response, for less inventory

6. Assemble to Order
Define customer’s order in terms of alternative components and options
Subway, In-N-Out
Configuration management: combine options properly into a buildable final product
Flexibility in combining components, options, and modules
Movement from MTS to ATO – less inventory, fresher product, better sales
Combinations:
31 ice cream * 4 sauces * 12 sprinkles = 1,488

7. Make/Engineer to Order
No stock components to assemble
Cooking at home – could make any of the standard things you usually make: burger, pizza, chili, etc., etc.
Include Engineer to Order
Tell me what you’d like – fancy restaurant
Significant design element in order creation
Don’t know possibilities of what customers might buy

8. What do you think? Which method is best?
What kinds of uncertainty are involved in each?
What determines customer service in each?
What is the decoupling point in each system?

9. Communication with Depts.
SOP – give forecasts, get prod. Plans
Capacity: material (MTS), labor (MTO)
Timing of deliveries & production
Master Production Scheduling
Detailed order info to MPS
Status of each order
Figs 2.5, 2.6

10. Forecasting Framework
Fig. 2.7, p. 30

11. Aggregating Demand
Long-term, or product-line forecasts more accurate than short term or detailed forecasts
Monthly: Avg = 20, std dev =2
95%: which is +/- 20%
Annual: Avg = 20 * 12 = 240
Std. Dev = 2 * sqrt(12) = 6.9
95%: , which is +/- 5.8%
Easier to forecast demand for components than for sales of particular car configurations.

12. Aggregating Demand
Individual item forecasts must add up to correct total
Individual item percentage of total probably constant
Pyramid forecasting – bring things into alignment
Force people to accept higher targets without “owning” them

13. Predicting Demand

14. Shared components
Grand
Prix
Grand Am
Grand
Prix

15. 2006 Solstice
MSRP around $20,000

16. HP Inkjet Printers
Printers made in Vancouver, sent via ship through Panama Canal to Europe
Europe warehouse stocks inventory by country
physically different-- power supply
manuals different languages
Substitution not allowed
Re-supply time very long

17. Euro Plugs No standardized power supplies for Europe
Different power supply for every country.

18. HP Inkjet Printers
Redesigned printers so that power supply added in Europe
Re-engineer product, power supply
Assembly done in a warehouse (Quality?)
Manuals added in Europe
Many expensive changes
Store ‘vanilla’ boxes
Postpone point of differentiation

19. Delayed Customization
Before
Production Storage Shipping Storage
After

20. Benetton
Benetton sweaters made of undyed wool, dyed once demand is known
Dyeing LT much faster than production
How many undyed sweaters to make?
How many Red, Green, Blue, also, if this production process is cheaper, and you know you’ll sell some minimum amount?