Demand Management

Demand Management

Covers how a firm integrates information from and

about its customers, internal and external to the firm,
into the manufacturing planning and control
systems.
 Demand Management
How a firm integrates information from its customers
with information about the firms goals and
capabilities, to determine what should be produced
in the future.
 Demand Management Forecast & Plan
In DM, FORECASTS of the quantities and timing of
customer demand are developed.

What do we actually plan to deliver to customers each

period is the output of the process. This is based on
marketing quotas, special sales incentives, etc. These
amounts will be based on inputs from many different
sources and not just quantitative forecasts.
Why Forecast and Plans are important

 A manufacturing manager cannot be held

responsible for not getting a forecast right,

 A manufacturing manager can and should be held

responsible for making their plans.
Responsibility of the MPC
 Providing the means for making as good a set of
executable plans as possible and then
Providing the information to execute them.

and when conditions change

 The control function should change the plans and
 The new plans should be executed faithfully.
Dependent vs Independent
Demand
 Customer Demand (la richiesta del cliente) in most cases
are independent demands (difficult to control and
must be forecast).

 Demand of components (la richiesta di componenti) in the

assembly of a product is often dependent demand
and can be calculated (although plans will change).

 What is the customer order decoupling point?

 Customer Order Decoupling
Point
 Can be looked at as the point at which demand changes
from independent to dependent. It is the point (nel processo di
produzione) at which the firm, as opposed to the customer,
becomes responsible for determining the timing and
quantity of material to be purchased, made, or finished.
Il cliente ordina in base a: La fabbrica è
responsabile rispetto a:

 Engineered to order catalogo Suppliers

 Made to order materiali disponibili Raw Materials inventory

 Assemble to order parti disponibili WIP

 Made to stock finiti disponibili Finished Goods
 Decoupling Points e Lead Time

Make-to-Stock (MTS)
Short Finished Goods
Components/Subassemblies
Assemble to Order (ATO)
Raw Materials
Lead
Time

Make to Order (MTO)

Long Suppliers Engineer to Order
 Demand Uncertainty…
how is it dealt with?
MTS – Safety stocks of end items.

ATO – Forecast product mix and calculate expected

components and sub-assemblies. Safety stock carried in
these items.

MTO – Uncertainty involves the level of company

resources that will be required to complete the
engineering and produce the product once the
requirements are determined. May carry some raw
materials.
 Demand Uncertainty…
how is it dealt with?
MTS – Safety stocks of end items.

ATO – Forecast product mix and calculate expected

components and sub-assemblies. Safety stock carried in
these items.

MTO – Uncertainty involves the level of company

resources that will be required to complete the
engineering and produce the product once the
requirements are determined. May carry some raw
materials.
 Examples
 Give examples of Make-to-Stock (MTS), Assemble-to-Order
(ATO) and Made-to-Order (MTO) products?

 What are the advantages in moving from MTS, to ATO, to

MTO?
 Make-to-Stock Environment (MTS)
Key focus is MAINTENANCE of FGIfinished goods inv.
TRACKING of demand by locationinseguire la domanda così come
throughout the supply chain is an important
dislocata
activity.
Key issue is HOW, WHEN,& HOW MUCH, to
REPLENISH STOCK at a specific location (physical
distribution concern).
Firms employ distribution centers, warehouses, and even
vendor-managed inventory inside their customer’s
location.
Make-to-Stock Environment (Cont) MTS
Managers require information on the INVENTORY
STATUS in the various locations, relationships with
transportation providers, and estimates of demand by
location and item (forecasting).
Satisfying customers requires to BALANCE the level
of inventory against the level of service to the
customers. A trade-off between the inventory costs
and the level of service must be made.
IMPROVEMENTS can be made by having better
knowledge of demand, + rapid transportation
alternatives, speedier production, more flexibility
 Assemble-to-Order (ATO)
The primary task of Demand Management is to
DEFINE THE CUSTOMER’S ORDER in terms
of alternative components and options.
It is important that they be COMBINED into a
viable (realizzabile) product in a process known as
configuration management.
One of the capabilities required for success is
ENGINEERING DESIGN that enables as much
flexibility as possible in combining components,
options, and modules into the finished products.
 Assemble-to-Order (ATO)
(Cont.)
In this environment the independent demand for the
assembled items is TRANSFORMED into
dependent demand for the parts required to produce
the components needed.
The inventory that defines customer service is the
inventory of COMPONENTS not finished products.
The number of finished products is usually
substantially greater than the number of components
that are combined to produce the finished product
(Example).
Total Combinations = N1 * N2 * N3* . . . *Nm
 Make-to-Order (MTO)
MOVING THE CUSTOMER decoupling point to
raw material or even suppliers reduces the scope
of dependent demand information.
The task of demand management in this
environment is to COORDINATE
INFORMATION on customers’ product needs
with engineering.
Demand management now includes determining
HOW MUCH ENGINEERING CAPACITY will
be required to meet future customer needs.
 Make-to-Order (MTO) (Cont.)
In these environments, suppliers’ capabilities may
limit what we are able to do, so COORDINATION
with them is essential.
This span of involvement from customer to supplier
gives rise to the term supply chain (or demand
chain) and
The coordination of activities along the supply
chain is referred to as supply chain management.(in
effetti la def. di SC può essere più generale e si applica anche all’ATO)
 Providing Appropriate
Forecast Information ???
 A Forecasting Framework –
 Level of product aggregation (aggregate forecasts are more
accurate)
 Time frame (monthly, quarterly, etc.) (longer time frame
forecasts are more accurate)… there are limits to this

 DM forecasts are short term and tactical whereas strategic

forecasts are long term and usually more expensive.
 Information
CRM Use data
– Individual customer in DM ???
is collected
by Customer Relationship Management
software.
 In MTS firms, the customer information at this level
can help discern early demand and mix trends.
 In MTO/ATO, CRM can be used to develop similar
insights into customers. Data can used to develop
make-to-knowledge plans on an individual customer
basis.
 Forecasts for Strategic
Business Planning ???
 Are used for long term broad based forecasts –
capital expansion, new product line, merger or
acquisition decisions.

 Usually use causal models and regression analysis

 Forecasting for DM
The forecasts are AGGREGATED to the product
family level and from a few month horizon to
about a year.
If there is domain information such as customer
plans that can be gleaned through conversations
with directly customers, this information should
be used by. These are CRM (Customer Relationship
Management) activities.

Often very precise calculations can be made of

expected demand, based on future events.
 Concluding Principles
 Data capture must not be limited to sales but should
include domain info such as knowledge, trends,
systems performance
 Forecasting models should not be more complicated
than necessary. Simple models work just as good.
 Forecast from different sources must be reconciled
and made consistent with firm plans and constraints.
 Concluding Principles
 Input data and output forecasts should be routinely
monitored for quality and appropriateness.
 Information on sources of variation should be
incorporated into the forecasting system.
 Forecast from different sources must be reconciled
and made consistent with firm plans and constraints.