1. Chapter 6 Demand Management dp&c Chapter 6
“Education in Pursuit of Supply Chain Leadership”
dp&c
Chapter 6
Chapter 6
Demand Management

2. Learning Objectives Define demand management
Detail the components of demand management
Formulate demand management strategies
Determine the process of demand planning
Perform demand planning
Perform marketing planning
Perform sales planning
Develop the demand forecast

3. Learning Objectives (cont.)
Perform production and resource planning
Perform inventory and distribution planning
Understand balancing the demand and supply plans
Detail the foundations of S&OP
Work with S&OP planning grids
Perform the monthly S&OP process

4. Defining Demand Management
Chapter 6
Demand Management
Defining Demand Management

5. Demand Management Definitions
APICS Dictionary:
1) The function of recognizing all demands for goods and services to support the marketplace. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results.
2) In marketing, the process of planning, executing, controlling, and monitoring the design, pricing, promotion, and distribution of products and services to bring about transactions that meet organizational and individual needs
CSCMP:
The proactive compilation of requirements information regarding demand (i.e., customers, sales, marketing, finance) and the firm's capabilities from the supply side (i.e., supply, operations and logistics management); the development of a consensus regarding the ability to match the requirements and capabilities; and the agreement upon a synthesized plan that can most effectively meet the customer requirements within the constraints imposed by supply chain capabilities

6. Components of Demand Management
Marketing Strategy
Demand Strategy
Demand Forecast
Demand
Management
Demand
Management
Supply Plan
CRM/CSM and Sales Plan
Demand Plan

7. Demand Management Strategic Alternatives
Focused on determining how companies can gain market share by developing internal competencies or leveraging synergies gained through merger or acquisition
Growth strategies
Concerned with the type, scope, nature, and life cycles of the range of products and services offerings constituting the firm's value proposition
Portfolio strategies
Seek to continuously renew supply chain structures that effectively place the right combination of products and services within the supply channel network based on demand and supply economics
Positioning strategies
Concerned with the creation of a flexible portfolio of assets that provide strategic planners with the capability to expand and channel capital, physical resources, and research investment to realize the best marketplace opportunities
Investment strategies

8. Creating the Demand Plan
Chapter 6
Demand Management
Creating the Demand Plan

9. Demand Planning - Definition
A process that weighs both customer demand and a firm’s output capabilities, and tries to balance the two
Demand management consists of planning demand, communicating demand, influencing demand, and prioritizing demand

10. Planning Demand Processes
Marketing Plan
Sales Plan
Business Plan
Historical Data
Demand Plan
Forecast
S&OP Process

11. Product Classifications
Product Planning Process
Product Portfolio
Product Classifications
Product Life Cycle
Services Strategy
Product OK?
Life Cycles OK?
Services OK?
Brand Strategy
Strategy OK?
Marketing Strategy

12. Product Definition Definition Categories
A product is a physical good offered to the market for acquisition, use, or consumption that satisfies a want or need
Categories
Durable goods: products that are designed to last for an extended period of time without rapid deterioration or obsolescence
Nondurable goods: products that are consumed or must be consumed quickly or that deteriorate rapidly
Services: products that are intangible, produced and consumed simultaneously, often delivered with varying content, and cannot be stored

13. Product Hierarchy Product Levels Product Family Product Class
Product Line
Product Type
Product Levels
Product SKU

14. Raw materials and components
Categories – Industrial Goods
Farm and natural products, such as foodstuffs, lumber, petroleum and iron ore, and fabricated or manufactured components used by manufacturers who convert them into finished products
Raw materials and components
Equipment such as generators, computers, automobiles, material handling equipment, and office furniture. Products in this category are considered finished goods
Capital goods
Consumer-type goods such as paint, nails, office supplies, small tools, lubricants, and fuels
MRO

15. Categories – Consumer Goods
Products usually purchased frequently, immediately, and with the minimum of effort in comparison or buying. Examples include staples (bread and milk) impulse goods (candy), and emergency goods (medical supplies)
Convenience goods
Products customers normally will shop for in many locations and compare price, quality, performance, and suitability before a decision to purchase is made. Examples include fashion apparel and appliances
Shopping goods
Products possessing unique characteristics or brand recognition for which customers are willing to expend a significant effort to acquire them. Examples include automobiles and women's fashions.
Specialty goods

16. Additional Product Characteristics
Form. Refers to the size, shape, color, or physical structure of a product
Replacement rate. Refers to the frequency with which a product is purchased or manufactured
Level of service. Some products require specific levels of service such as training, warranty, repair, or other activities
Conformance to quality. Describes the degree to which products are identical to and meet the promised specifications
Durability. Refers to the duration of a product's functional life under normal operating conditions

17. Additional Product Characteristics (cont.)
Reliability. Refers to the probability that a product will not fail within a specified time span
Degree of customization. Nonstandardized products often require special assistance for installation, training, or other forms of servicing that must be performed by the producer

18. Product Life Cycle Dynamics

19. Product Life Cycle Characteristics

20. Services Characteristics
Service is usually an intangible exchange of value, in contrast to the tangible value found in a physical product such as bread, butter, and jam
Intangible
Immediate consumption
Services are often produced and consumed simultaneously
Unique
The services received by a customer are often unique to that customer
While products are rigorously defined as to fit, form, and function, services normally consist of a core value around which a variety of different outcomes can occur
Lack of precise definition

21. Services Dimensions Intrinsic Services Extrinsic Services
Described as being almost “commodity” in nature because they directly accompany the product
Examples include warranties, packaging, rebates, and training allow customers to receive additional value with the receipt of the tangible product
Extrinsic Services
Described as not directly accompany the product
Examples include discounting, improved supply channel efficiency, credit, and product assortment add value to products by reducing customer internal costs, facilitating the flow of business information, and improving productivity

22. Services Life Cycle
Marketers will experiment with new forms of services they anticipate will provide a point of differentiation separating their firms from the competition
Development
Planners are still investing in services development, but customers are beginning to see that the new service is providing sufficient value to persuade them to purchase the product
Growth
Investment declines as the service becomes standardized, while increasing customer market demand for the product and accompanying services allow cost recovery and profit
Maturity
Customers feel the service is part of the product offering, often requiring that it be offered with little or no charge attached
Saturation

23. Product Brand Definition
A name, term, sign, symbol, or design, or a combination of them, intended to identify the goods or services of one seller or group of sellers and to differentiate them from those of competitors
Brand can be tangible and functional when related to the performance of a physical product; it can also be intangible and emotional when the brand acts as a symbol

24. Importance of Product Brand
Brand enables the marketplace to easily identify the product or service producer or distributor. Customers learn about brands through past experiences and through the firm's marketing programs
Brands provide important information for the firm such as organizing their products and accounting records
Branding enables companies to legally protect unique attributes and designs through registered trademarks and copyrights
Brands leave an indelible impression on customers regarding certain levels of quality, functional predictability, and purchase peace-of-mind possessed above the physical product or service (often termed brand equity) that cannot be duplicated by even the best replicas created by competitors

25. Definition of Marketing
The activity, set of institutions, and processes for creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large
American Marketing Association

26. Marketing Planning Process
Corporate Strategies
Marketplace Definition
Products and Services
Pricing and Promotions
Customers OK?
Products OK?
Prices OK?
Supply Channel
Distribution OK?
Marketing Plan

27. Developing Markets Mass Market Strategy
A strategy whereby the seller engages in the mass production, mass distribution, and mass promotion of a single product or narrow product line targeted at all potential customers.
Segmented or Niche Market Strategy
Segment the customer base into groups sharing common wants and needs, resources, geographical locations, buying attitudes, and practices
Target those market segments that manifest the proper size and growth, are attractive in regard to a lack of competitors, match existing products and services, and leverage the business's internal and external strengths and resources
Position the company's image, products, services, and brands so that customers within selected market segments understand the firm's competitive value

28. Marketing Strategy of One
Marketing in the Internet Age
This strategy requires marketers to have a firm grasp of the product, service, service, brand, and delivery strengths that give them a competitive advantage. Once this is done, they must advance to a position that views each customer as if they were each a separate market. A key element is using technology to enable the customer to determine exactly how, what, and at what price they want to buy

29. Sales Structure and Capacities
Sales Planning Process
Corporate Strategies
Sales Objectives
Sales Strategy
Sales Structure and Capacities
Goals OK?
Targets OK?
Organization OK?
Sales Performance
Sales OK?
Marketing Plan

30. Demand Forecast
The demand forecast enables the business to make assumptions (what demand will happen in the future) and view occurrences (what demand has actually happened in the past and how it impacted performance and forecast accuracy) about marketplace demand that is used as a roadmap to guide the performance requirements of the sales and operations teams. Forecast assumptions are concerned with internal actions that will shape future customer demand. Assumptions are also concerned with how the anticipated affect of events occurring in the external environment will affect marketplace demand

31. End-Product by Customer
Forecast Hierarchy
Forecast Data Type
Enterprise Levels
Aggregate Financial
Company
Business Unit Financial
Business Unit
Aggregate Sales Value
Market Segment
Product Family
Aggregate
Item-Level Usage
End-Product
Item-Level Sales Value by Customer
End-Product by Customer

32. Using Product Families in Forecasting
Product families should be organized to match the actual SKUs the supply channel sells to the marketplace as well as how they are processed or purchased
Since product families should never exceed more than perhaps a dozen or so, they are easily identifiable
Product families permit sales to use detailed financial and demand history data. This data can be “rolled-up” from actual SKUs and summarized into the product families to which they belong
As actual sales occurs through time and the data is rolled-up into the appropriate product families, sales is provided with a more accurate view of the viability of their forecasts

33. Pyramid Forecasting – Overview
Marketing and
sales roll-up
forecast
Management
forces down
forecast
Total
business volume
Product family units
and monetary value sold
Individual product units and
monetary value sold

34. Pyramid Forecasting – Example
US$ (000)
Business level forecast: - value
S&OP process disaggregation
US$1,960
Business level total product family demand roll-up: value
US$1,400
100,000 units
Product family level roll-up and forecast: - value
- units
Family A
Family B
US$800 (57%)
60,000 units
US$600 (43%)
40,000 units
Product level demand: value
- units
A1 (50%)
A2 (50%)
B1 (66%)
B2 (33%)
US$400
40,000 units
US$400
20,000 units
US$400
20,000 units
US$200
20,000 units
Unit costs:US$ US$ US$ US$10

35. Exercise 6-1 Pyramid Forecasting
Forecast Roll-up
Forecast Disaggregation

36. Creating the Supply Plan
Chapter 6
Demand Management
Creating the Supply Plan

37. Supply Plan Components
Production Plan
Historical
data
Resource requirements planning
Supply Plan
Inventory plan
Distribution planning
Performance measurements
Operations data
Master files

38. Production Performance
Production Planning Process
Corporate Strategies
Production Strategy
Financial Plan
Production Rates
Strategy OK?
Costs OK?
Rates OK?
Production Performance
Performance OK?
Supply Plan

39. Production Strategies
Sales ($millions) 5
Sales = 4 3 2
Level =
Chase =
Combo =
Production = 1 1 2 3 4 5 6 7 8 9 10 11
Time (Periods)

40. Level Production Plan Graphic
Quantity
Months

41. Level Production Plan Example
(7,000 – 6,100) + 60,500
Production rate =
= 8,771 (rounded)
7 months

42. Chase Production Plan Graphic
Quantity
Months

43. Chase Production Plan Example

44. Resource Planning – Definition
Capacity planning conducted at the business plan level. The process of establishing, measuring, and adjusting limits or levels of long-range capacity. Resource planning is normally based on the production plan but may be driven by higher level plans beyond the time horizon for the production plan (e.g., the business plan). It addresses those resources that take long periods of time to acquire. Resource planning decisions always require top management approval.

45. Resource Planning Process
Production Plan
Resource Capacity Profiles
Bills of Resources
Resource Capacity Calculation
Capacity OK?
Structure OK?
Load OK?
Resource Review
Availability OK?
Supply Plan

46. Resource Profile and Bill of Resources

47. Inventory and Distribution Planning Process
Corporate Strategies
Target Inventory Values
Product Family Inventory Review
Channel Design
Targets OK?
Quantities OK?
Channel OK?
Detail Logistics Plan
Logistics Structure OK?
Supply Plan

48. Inventory Minimum Balance Violations
Inventory Planning Grid Review
Inventory Minimum Balance Violations

49. Warehouse Capacity Analysis

50. Balancing the Demand and Supply Plans
Chapter 6
Demand Management
Balancing the Demand and Supply Plans

51. Sales and Operations Planning – Definition
A process to develop tactical plans that provide management the ability to strategically direct its businesses to achieve competitive advantage on a continuous basis by integrating customer-focused marketing plans for new and existing products with the management of the supply chain. The process brings together all the plans for the business (sales, marketing, development, manufacturing, sourcing, and financial) into one integrated set of plans. It is performed at least once a month and is reviewed by management at an aggregate (product family) level.
APICS Dictionary

52. S&OP - Characteristics
It is a formal business process used by the firm’s leadership team to connect corporate business planning with tactical planning, driving master scheduling and distribution planning
It provides managers with an opportunity to review and update the strategic business plan to meet organizational and marketplace changes as they occur through time
It ensures that the demand and supply plans are realistic, synchronized, and support the business plan
It provides sales and marketing with an opportunity to periodically review and revise demand plans so that they are closely synchronized with actual sales occurring in the marketplace
It enables operations managers to review and revise production and inventory plans that support the demand plan while optimizing productive and financial assets
It uses the aggregate data of sales, production, and inventory along with aggregate planning time buckets and product families to ensure greater planning accuracy. S&OP rarely uses individual products

53. S&OP – A Balancing Act Demand Supply S&OP Process Supply Demand Actual
Forecasts
Actual
Orders
Supply
Orders
Resources/
Capacity
Inventory
S&OP
Process
Demand
Supply

54. Plant and Supplier Scheduling
Demand and Supply Volume and Mix F O R E
C A S T I N G
&
D E M A N D M G T
Business Plan R E S O U C P L A N I G
VOLUME
S&OP D E M A N S U P L Y
Demand
Plan
Supply
Plan
PRODUCT MIX
Master Scheduling
MRP
Plant and Supplier Scheduling

55. S&OP Foundation Components
S&OP Teams and Roles
Grids and Graphs
Product Families
S&OP
Historical Data
Demand Plan
Supply Plan

56. S&OP Teams and Roles
Executive S&OP team. This team is composed of the senior executives of the firm. The primary role of this team is to provide strong leadership and commitment and making final demand and supply decisions
Executive sponsor. This individual is usually a member of the executive team assigned to champion the S&OP process. The primary role of the executive sponsor is to set clear performance expectations for top management, authorize necessary resources, and clear obstacles hindering an effective S&OP process
S&OP process owner. This individual chairs the S&OP team meetings. Responsibilities include maintaining the S&OP implementation project schedule, manage the list of issues arising from the team meetings, assist in issue resolution, and report problems to the executive S&OP team

57. S&OP Teams and Roles (cont.)
Demand planning team. This team is composed of managers responsible for demand management product analysis, customer service, sales administration, marketing, and account managers, as well as forecast analysts, new product coordinators, field sales, and the S&OP process owner The primary role of this team is to generate the new management forecast for the next fifteen to eighteen months into the future
Supply planning team. This team is composed of managers responsible for plant management, purchasing, materials, production control, logistics, quality, accounting and distribution as well as the master scheduler, new products coordinator, and the S&OP process owner. The primary role of this team is to generate the production and inventory plans

58. S&OP Databases
Product families. The S&OP process centers on the use of product families for all demand and supply planning activities. Planning at an aggregate level enables managers to focus on the right level for tactical decision making. S&OP works best when there are no more than 12 to 16 product families
Demand plan. The demand plan enables the S&OP process to assemble, review, and authorize the anticipated customer demand that will drive the planning process and is created by the S&OP demand planning team
Supply plan. This component is concerned with defining and validating the manufacturing and distribution capacities and capabilities needed to execute the demand plan. Assembling and managing this database is the responsibility of the S&OP supply planning team

59. S&OP Databases (cont.)
Historical data. This component is concerned with the collection and management of the firm's historical forecast, sales, production, and transaction database histories. Assembling and ensuring the accuracy of these databases is the responsibility of all individuals in the company

60. S&OP Planning Grids – MTS

61. S&OP Planning Grids – MTO

62. Chapter 6
Demand Management
Monthly S&OP Process

63. Executive S&OP Meeting Pre-Executive S&OP meeting
Monthly S&OP Process
Step 5
Decisions & updated S&OP plan – S&OP grid final pass
Executive S&OP Meeting
Step 4
Pre-Executive S&OP meeting
Scenarios, issues, recommendations for meeting
S&OP grid – third pass
Step 3
Supply planning
Resource plan grid – second pass
Step 2
Demand planning
S&OP grid – first pass
Step 1
S&OP data gathering
Actual sales, forecast, backlog supply, and inventory data

64. Step 1 – Data Gathering Update previous month’s data files
Generate information for new statistical forecast by sales and marketing
Share information with appropriate people
Automate feeds to S&OP planning grids

65. Step 2 – Demand Planning
Demand Management team reviews demand information and forecast variances
Update the existing statistical forecast
Forecast by product families
Forecast includes any product lifecycle changes for the time frame covered by planning horizon
Generate the S&OP MTS forecast
Create first pass MTS S&OP grids
Executive authorization

66. Step 3 – Supply Planning
Supply management team reviews supply performance to plan
First-pass MTS and MTO grids reviewed against current family-level capacity plans for possible change
Adjust supply plan to meet inventory/backlog targets
Run resource requirements planning and readjust the supply plan where needed
Develop alternative scenarios for resource problems needing review at S&OP pre-meeting
Create second pass S&OP resource grids

67. Exercise 6-2 Resource Requirements Calculation
Step 1: Create grid of past production and new forecast
Step 2: Create load profile for each product family

68. Exercise 6-2 Resource Requirements (cont.) Calculation
Step 3: Calculate the product family resource profile
Step 4: Create resource requirements planning (RRP) report

69. Exercise 6-2 Resource Requirements (cont.) Calculation
Step 5: Graph RRP results

70. Step 4 – Pre-Executive S&OP Meeting
Initial set of performance goals and metrics
Explanation of data gathering process
Updated financial view of the S&OP plan
Decisions/recommendations for each product family
Decisions/recommendations for each resource requiring change
Areas where a consensus could not be reached
Explanation of the S&OP grids and graphs – 3rd pass
Explanation of the preparation for the Executive Meeting: topics, flow, roles, responsibilities, agenda

71. Step 5 – Executive S&OP Meeting
Accept or make changes to the Pre-Executive S&OP team recommendations or alternatives for each product family
Authorize production or procurement changes
Compare production plans to business plan and make required adjustments
Make decisions where no agreement was reached by the Pre-Executive S&OP Meeting team
Review business key performance indicators where performance was less than planned
Authorize the overall S&OP demand and supply plan

72. Exercise 6.3 Solving Impasses – Workforce Costs

73. Benefits of the S&OP Process
Establishes operational plans consistent with the business plan
Continually updates the production, financial, and sales plan
Provides for cross-functional planning
Establishes regular meetings with senior executives to resolve demand versus supply trade-offs
Checks availability of resources to validate the production plan
Increases teamwork and collaborative skills

74. Chapter 6 End of Session dp&c Chapter 6
“Education in Pursuit of Supply Chain Leadership”
dp&c
Chapter 6
Chapter 6
End of Session