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 manufacturers are mostly located far away from
the consumers, who determine what will be available
for sale in the market
• In order to mitigate this problem, more attention is
given to demand management.
 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 methods to deliver
products and services to customers in the desired
format.
 Demand Management: Related Issues
• Lack of communication between departments
results in little or no coordinated response to
demand information
• Too much emphasis is often placed on forecasts of
demand with little attention paid to collaborative
efforts and strategic and operational plans that
need to be developed from the forecasts
• Demand information is often used more for
tactical and operations purposes than for strategic
purposes.
Supply Demand Misalignment
 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
 • Perform ‘what if’ analyses on total industry volume to gauge how specific mergers and
acquisitions might leverage market share.
• Analyze industry supply/demand to predict changes in product pricing structure and
Growth market economics based on mergers and acquisitions.
Strategy • Build staffing models for merged company using demand data

• Manage maturity of products in current portfolio to optimally time overlapping life

cycles.
• Create new product development/introduction plans based on the cycle.
• Balance combination of demand and risk for consistent ‘cash cows’ (a business,
Portfolio investment, or product that provides a steady income or profit) with demands for new
strategy products.
• Ensure diversification of product portfolio through demand forecasts.

• Manage product sales through each channel based on demand and product economics
Positioning • Manage positioning of finished goods at appropriate distribution centers, to reduce
strategy working capital, based on demand.
• Define capability to supply for each channel

Investment • Manage capital investments, marketing expenditures, and research and development budgets
strategy based on demand forecasts of potential products and maturity of current products.
• 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.
 Integration of sales forecasting and production
The figure below outlines the approach of a firm to sales forecasting and its
integration with production scheduling activities.
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 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).
 Collaborative Planning, Forecasting, and
Replenishment
• CPFR is recognized as a breakthrough business model
for planning, forecasting, and replenishment.
• Uses available Internet-based technologies to
collaborate from operational planning through
execution.
• Developed by Wal-Mart and Warner-Lambert in 1995.
• Emphasizes a sharing of consumer purchasing data
among and between supply chain partners.
• Creates a direct link between the consumer and the
supply chain.
Three critical elements of collaborative planning are
shown in the figure below:
Collaborative
demand planning

Synchronized Collaborative planning Joint

order and execution Capacity Planning
fulfillment
 Order fulfillment
When an order is placed by a buyer, then an efficient and effective
order-fulfillment requires the 4 key stages of order fulfillment. The
following figure shows how these stages differ as supply chain activity
matures from transactional to interactive to interdependent.
 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 • Check pricing and promotion
• Enter order – • Identify shipping point
manual/electronic • Generate pricing documents
• Verify and check order for • Originate shipment
accuracy
• Inquire order status
• Check credit
• Deliver order
• Check inventory availability
• Measure service level
• Process backorder
• Acknowledge order • Measure quality of service
• Modify order (if needed) • Assure continuous
• Suspend order (if needed) improvement
 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 and replenishment cycles
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.
• 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.
• One way of ensuring timely delivery is to ask for
Advance Shipment Notification (ASN) from supplier firm
• Alternatively, shippers may prefer to receive Proof of
Delivery (POD) documentations from carriers
 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.
 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, stock outs, back order and lost sales have impact on
customer satisfaction.