MIS Topic # 2 1 Demand Management

MIS Topic # 2 2 Definitions: Demand Management: the function of recognizing and managing all demands for products. 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.

MIS Topic # 2 3 Demand Management: Forecast & Plans 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. Take into considerations marketing quotas, special sales incentives, etc. These amounts will be based on inputs from many different sources and not just quantitative forecasts.

MIS Topic # 2 4 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 The new plans should be executed faithfully. A manufacturing manager cannot be held responsible for not getting a forecast right, but should be held responsible for making the plan.

MIS Topic # 2 5 Dependent vs. Independent Demand Customer Demand in most cases are independent demands (difficult to control and must be forecasted). Demand of components in the assembly of a product is often dependent demand and can be calculated (although plans will change). So, what is the customer order decoupling points?

MIS Topic # 2 6 Customer Order Decoupling Point The point at which demand changes from independent to dependent. It is the point 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. Engineered to order Suppliers Made to order Raw Materials Assemble to orderWIP Made to stockFinished Goods

MIS Topic # 2 7 Finished Goods Components/ Subassemblies Raw Materials Suppliers Lead Time Short Long Decoupling Points Make-to-Stock (MTS) Assemble to Order (ATO) Make to Order (MTO) Engineer to Order

MIS Topic # 2 8 Make-to-Stock Environment (MTS) Firms manufacture and sell goods from inventory, customer has little involvement in product design. Key focus is MAINTENANCE of finished goods inventory. Information from various locations is important. Firms employ distribution centers, warehouses, and even vendor-managed inventory inside their customer’s location. Satisfying customers requires to BALANCE the level of inventory against the level of service to the customers. IMPROVEMENTS can be made by having better knowledge of demand, + rapid transportation alternatives, speedier production, more flexibility options in inventory.

MIS Topic # 2 9 Assemble-to-Order (ATO) Product is made from standard components, Key focus is to DEFINE CUSTOMER’S ORDERS in terms of alternative components and options. It is important that alternatives be COMBINED into a viable product in a process known as configuration management. Improvements can be made through the success in ENGINEERING DESIGN that enables as much flexibility as possible in combining components, options, and modules into the finished products. The inventory that defines customer service is the inventory of COMPONENTS not finished products. The number of finished products is greater than the number of components that are combined to produce the finished product. Total Combinations = N1 * N2 * N3*... *Nm

MIS Topic # 2 10 Make-to-Order (MTO) Firm makes the product when receiving the order only. Key focus 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. 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.

MIS Topic # 2 11 How to deal with “Demand Uncertainty”? MTS – Safety stocks of end items. ATO – Forecast product mix and calculate expected assembly and part requirements. 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 supplier parts/raw materials.

MIS Topic # 2 12 Concluding Principles DM systems and procedures must be aligned with the market environment of the firm. Data capture must not be limited to sales but should include domain info such as knowledge, trends, systems performance.