Demand Management

Satisfaction of customers’ demand

 Learning Objectives
• The growing need of effective demand management as part of
firm’s overall logistics and supply chain expertise.
 Introduction
• Demand management is essential for satisfaction of
customers demands. It may be thought of as
“focused efforts to estimate and manage customers’
demand , with the intention of using this information
to shape operating decisions.”

• Traditional supply chains typically begin at the point

of manufacture or assembly and end with the sale of
product to consumers or business buyers.
 Demand Management
• Much of the focus and attention have been related to
the topic of product flow, with significant concerns
for matters such as technology, information
exchange, inventory turnover, delivery speed and
consistency, and transportation.

• The essence of demand management is to further

the ability of firms throughout the supply chain –
particularly through the customer-to collaborate on
activities related to the flows of product, services,
information, and capital.
 Demand Management
• The following list suggests a number of ways in which demand
management will help to unify channel members with the
common goal of satisfying customers, and solving customers
problems:

• Gathering and analyzing knowledge about customers, their

problems and their unmet needs.

• Identifying patterns to perform the functions needed in the

demand chain.

• Upgrading the functions to the channel members for their

effective and efficient performance.
 Demand Management
• Sharing knowledge with other supply chain members
about consumers and customers, available technology,
logistics challenges and opportunities.

• Developing products and services that solve

customers’ problems.

• Developing and executing the best methods of

transportation and distribution to deliver products and
services to customers in the desired format.
 Demand Management
• Table below provides a view of demand data
may be used strategically to enhance the
growth, portfolio, positioning, and investment
strategies of companies
 How Demand Management Supports Business strategy
Strategy- Examples of how to use demand management

Growth Strategy
1. Perform ‘what if’ analyses on total industry volume to
gauge how specific mergers and acquisitions might
leverage market share.

2. Analyze industry supply/demand to predict changes in

product pricing structure and market economics based
on mergers and acquisitions.

3. Build staffing models for merged company using

demand data
How Demand Management Supports Business strategy
•Portfolio strategy
•1. Manage maturity of products in current portfolio to
• optimally time overlapping life cycles.

•2. Create new product development/introduction plans

• based on the cycle.

•3. Balance combination of demand and risk for consistent

• ‘cash cows’ (a business, investment, or product that
• provides a steady income or profit) with demands for
• new products.

•4. Ensure diversification of product portfolio through

• demand forecasts.
How Demand Management Supports Business strategy

Positioning strategy
1. Manage product sales through each channel based
on demand and product economics
2. Manage positioning of finished goods at
appropriate distribution centers, to reduce working
capital, based on demand.

3. Define capability to supply for each channel

 How Demand Management Supports Business strategy

• Investment strategy
• 1. Manage capital investments, marketing expenditures,
and research and development budgets based on
demand forecasts of potential products and maturity of
current products.
• 2. Determine whether to add manufacturing capacity
 Forecasting
• A major component of demand management is forecasting,
the amount of product that will be purchased by customers or
end users. Different approaches to forecasting serve different
purposes based on the length of forecast as follows:
• Short-term forecasts- They are generally for less than one year
and are most important for the operational logistics planning
process. They forecasts demand into several months ahead and
focusing increasingly on shorter time intervals.
• Midrange forecasts- These are for one to three years range –
generally address budgeting issues and sales plan.
• Long term forecasts- These usually cover for more than three
years and used for long-range planning and strategic issues.

• The figure below outlines the approach of a firm to sales

forecasting and its integration with production scheduling
activities.
 Forecasting
• Integration of sales forecasting and production
History file
(3 years-demand, price, Gross market
seasonality, deals, requirement
promotions, etc. (1-3-year period)

Choosing of a Aggregate production

forecasting model schedule
(12 months)
12-month forecast
(by month)

Allocation of aggregate
Brand and product requirements to plants
managers review and
recommend changes

Shot-term production
Revised forecast
scheduling
 Order fulfillment
• When an order is placed by a buyer, then an efficient and
effective order-fulfillment requires the 4 key stages
(information sharing, decision making, performance measures,
technology) of order fulfillment. The following figure shows
how these stages differ as supply chain activity matures from
transactional to interactive to interdependent.

Stages of order fulfillment

Transactional Interactive Interdependent
Information Limited to basic Some sharing of Extensive sharing
sharing order information inventory availability of inventory,
and shipment shipment, and
information sell-through information
Decision Independent order Some negotiations Synchronized order
Making decisions of order decisions decisions driven by
among partners shared replenishment
policies, channel inventory
data and POS (point of
sale) information (VMI)
 Order fulfillment
Performance limited performance Some shared Extensive use of
measures measures performance performance measures
like lead times, tied to shared risks and

on-time delivery rewards

and inventory
availability

Technology Limited use of Some use of Extensive use of

technology technology to technology to allow
track orders and real-time tracking of
material flow orders and material
and an automatic
replenishment
 The Order Management System
• The order management system represents the principal means
by which buyers and sellers communicate information relating
individual orders of product. Effective order management is a
key to operational efficiency and customer satisfaction. A list of
typical order management functions is as follows:
• Receive order
• Enter order – manual/electronic
• Verify and check order for accuracy
• Check credit
• Check inventory availability
• Process backorder
• Acknowledge order
• Modify order (if needed)
• Suspend order (if needed)
 The Order Management System
• Check pricing and promotion
• Identify shipping point
• Generate pricing documents
• Originate shipment
• Inquire order status
• Deliver order
• Measure service level
• Measure quality of service
• Assure continuous improvement

• Four principal activities constitute lead time or order cycle: order

placement, order processing, order preparation and order shipment
which are shown in the following figure.
• (The replenishment cycle is used more frequently when referring to
the acquisition of additional inventory, as in material management)
 Order and replenishment cycles
• Major components of the order cycle

Order Order Order Order

placement processing preparation shipment

• represents principal product flows

• represents information flows

• Order placement- order-placement time can vary significantly,

from taking days, or weeks to being instantaneous. Company
experiences indicate that improvement in order-placement
systems and processes offer some of the greatest opportunities
for significantly reducing the length and variability of the
overall order cycle.
 Order and replenishment cycles
• Order-processing- The order-processing function usually
involves checking customer credit, transferring information to
sales record, sending the order to the inventory and shipping
areas, and preparing shipping documents.
• Many of these functions can occur simultaneously through
the effective use of available information technologies. Recent
improvements in computer and information systems have led
to considerable reductions in the times needed to accomplish
these activities.
• Order preparation- Depending on the commodity being
handled and other factors, the order-preparation process
sometimes may be very simple and performed manually or
perhaps, may be relatively complex and highly automated.
 Order and replenishment cycles
• The time needed to prepare orders for shipments frequently
represents a significant bottleneck in the overall order cycle,
advance information concerning the composition of individual
shipments has become highly desirable.
• The availability of real time information system has helped
significantly, to see that this information available in a timely and
functional manner.
• Order shipment- Shipment time extends from the moment an
order is placed upon the transport vehicle, until the moment it is
received and unloaded at the buyer’s location. Measuring and
controlling order-shipments time sometimes can be difficult when
using for hire-transportation services; however, most carriers
today have developed the ability to provide their customers with
this type of information.
 Order and replenishment cycles
• Length and variability of order cycle-While interest has
traditionally centered more on the overall length of the
order/replenishment cycle, recent attention has been focused
on the variability or consistency of this process.
• Consistent with the contemporary interest in meeting
customer requirements, there also is a concern for making
sure that the first priority is to deliver shipments at the time
and location specified by the customer.
Collaborative Planning, Forecasting and replenishment
• Over time, there have been numerous industry initiatives that
have attempted to create efficiency and effectiveness through
integration of supply chain activities. They have been
identified by names such as
• quick response,
• electronic data interchange (EDI),
• short cycle manufacturing,
• vendor-managed inventory (VMI),
• continuous replenishment planning (CRP)
• efficient consumer response (ECR).

• Three critical elements of collaborative planning are shown in

the figure below:
 Collaborative Planning and Execution

• Collaborative
• demand planning

• Synchronized Collaborative planning Joint

• order and execution Capacity Planning
• fulfillment
•
 Customer Service
• Customer service is really the fuel that that drives the logistics supply
chain engine.
• Have the right product at the right time, in the right quantity, without
damage or loss, to the right customer is an underlying principle of
logistics systems that recognizes the importance of customer service.
Examples of the various forms that customer service may take include
• Revamping a billing procedure to accommodate a customer’s request
• Providing financial and credit terms
• Guaranteeing delivery within specified time periods
• Providing prompt and congenial sales representatives
• Extending the option to sell on consignment
• Providing material to aid in a customer’s sales presentation
• Installing the product
• Maintaining satisfactory repair parts inventories
•
 Customer Service
• Generally, there are three levels of customer service
involvement or awareness as follows:
• Customer service as an activity-This level treats customer
service as a particular task that a firm must accomplish to
satisfy the customer’s needs. Order processing, billing and
invoicing, product returns, and claims handling are all typical
examples of this level of customer service.
• Customer service as a performance measures- This level
emphasizes customer service in terms of specific performance
measures, such as percentage of orders delivered on time,
and complete and the number of orders processes within
acceptable time limit.
• Customer service as a philosophy – This level elevates
customer service to a firm-wide commitment for providing
customer satisfaction through superior customer service.
 Elements of customer service
• Time – This generally indicates the lead time of delivering a product or
service. Successful logistics operations today have a high degree of
control over most, if not all, of the basic elements of lead time,
including order processing, order preparation, and order shipment.
Guaranteeing a given level of lead time is an important advancement in
logistics management.
• Dependability-Generally, it refers to delivering a customer’s order with
a regular, consistent lead time; in safe condition; and in harmony with
the type and quality of items the customer ordered.
• Communication- Customer communication is essential to the design of
logistics service levels. Communication with customers is vital to
monitoring customer service levels relating dependability. However,
communication must be a two way street.
• Convenience- It is another way of saying that the logistics service level
must be flexible. Convenience recognizes customers’ different
requirements.
 Performance measures for customer service
• The performance measures are stated from the point of view
of the customer as follows:
• orders received on time
• Order received complete
• Order received damage free
• Orders filled accurately
• Orders billed accurately
• It would be difficult to summarize all the discussion and
analysis related to customer service. Some important overall
points about customer service are as follows:
• If the basics of customer service are not in place, nothing else
matters.
• Customers may define service differently.
 Performance measures for customer service
• All customers accounts are not the same
• Relationships are not one-dimensional
• Partnerships and added value can ‘lock up’ customers.
• Besides, stockouts, back order and lost sales have impact on
customer satisfaction.