CHAPTER 6

Demand Management and Order

Management
 Demand Management

• Demand management can be defined as “the

creation across the supply chain and its markets
of a coordinated flow of demand.”

Source: John T. Mentzer, “A Telling Fortune”, Industrial Engineer, April 2006, 42-47.
 Demand Management

• Demand (sales) forecasting

– Refers to an effort to project future demand
– Is a key component in demand management
– Is helpful in make-to-stock situations
– Is helpful in make-to-order situations
 Demand Management

• Three basic types of demand forecasting models:

– Judgemental
– Time series
– Cause and effect (associative)
 Demand Management
• Judgmental demand forecasting model:
– Involves using judgment or intuition
– Preferred in situations where there is limited or no
historical data
– Techniques include surveys, the analog technique,
and others
• Surveys used to learn about customer preferences and
intentions
• An analog (similar item to that being forecasted) is used
as the basis for demand history
 Demand Management
• Time series forecasting model:
– Underlying assumption is that future demand is
solely dependent on past demand
– Some techniques include:
• Simple moving averages
• Weighted moving averages
Demand Management
 Demand Management
• Cause-and-effect forecasting model:
– Also referred to as associative forecasting
– Assumes that one or more factors are related to
demand and that the relationship between cause
and effect can be used to estimate future demand
– Some techniques include:
• Simple regression
• Multiple regression
 Demand Management
• Demand forecasting issues:
– Selection of forecasting technique(s) depends on
many factors
– Selecting an inappropriate technique will reduce
forecast accuracy
– Forecast accuracy can have important logistical
implications
– Computer forecasting software unable to
completely eliminate forecast errors
 Order Management
• Order management refers to management of the
various activities associated with the order cycle

• Order cycle (replenishment cycle or lead time)

refers to the time from when a customer places
an order to when goods are received

• Some organizations include order to cash cycle in

their order management model
 Order Management
• Four stages of the order cycle include:
– Order transmittal
– Order processing
– Order picking and assembly
– Order delivery
 Order Management
• Order transmittal refers to the time from
when the customer places an order until the
seller receives the order
• Methods of order transmittal
• In person
• Mail
• Telephone
• FAX
• Electronically
 Order Management
• Order processing refers to the time from when
the seller receives an order until an appropriate
location (i.e. warehouse) is authorized to fill the
order
 Order Management
• Order processing includes:
– Checking for completeness and accuracy
– A customer credit check
– Order entry into the computer system
– Crediting salesperson with the sale
– Recording the transaction
– Determining inventory location
– Arranging for outbound transportation
Figure 7.1: Flowchart of Order Handling (Order
Processing) System
 Order Management
• Order picking and assembly includes all
activities from when an appropriate location is
authorized to fill the order until goods are
loaded aboard an outbound carrier
 Order Management
• Order picking and assembly
– Often represents the best opportunity to improve
the effectiveness and efficiency of an order cycle
– Can account for up to 2/3 of a facility’s operating
cost and time
 Order Management
• Examples of Order Picking and Assembly
technology:
– Handheld scanners
– Radio-frequency identification (RFID)
– Voice-based order picking
– Pick-to-light
 Order Management
• Order delivery is the time from when a
transportation carrier picks up the shipment
until it is received by the customer.
 Order Management
• Three key order delivery issues:
– Variety of options in terms of transit time are now
available such as delivery by 12 noon and delivery by
4:30 P.M.
– A number of shippers are emphasizing both elapsed
transit time as well as transit time reliability
– Transportation carriers are revamping their
operations to provide faster transit times to
customers