Dr. Ron Tibben-Lembke SCM 461 Demand Management Dr. Ron Tibben-Lembke SCM 461

Role of Demand Management Collect information from all demand sources Customers Spare parts Negotiate and Confirm shipping dates, quantities Confirm order status, communicate changes

Different Environments Factory to customers – plant very aware of customer needs Factory to DC – stable replenishment plan Plan vs. Forecast: Forecast is what you think demand will be like Plan is how you will respond to demand “A manager cannot be held responsible for not getting a forecast right.” How are you going to respond to changes in demand? You have control over the plan and execution, not demand Rain forecasted? You decide to bring umbrella or not. Planning a BBQ: 300 people? 500?

Independent vs. Dependent Demand Feeding manufacturing, demand for parts is dependent on manufacturing plan Sales to customers are independent of our (production) activities. Customer order decoupling point: when control of timing passes from customer to us Make to stock – Finished goods Assemble to Order – WIP Make to Order – Raw Materials Engineer to Order - suppliers

Make to Stock Customers buy finished, generic product McDonalds’ heat lamp days Triggers signal to make more Use warehouses, DCs to fulfill demand Maybe VMI? Tradeoff of more flexible manufacturing, faster response, for less inventory

Assemble to Order Define customer’s order in terms of alternative components and options Subway, In-N-Out Configuration management: combine options properly into a buildable final product Flexibility in combining components, options, and modules Movement from MTS to ATO – less inventory, fresher product, better sales Combinations: 31 ice cream * 4 sauces * 12 sprinkles = 1,488

Make/Engineer to Order No stock components to assemble Cooking at home – could make any of the standard things you usually make: burger, pizza, chili, etc., etc. Include Engineer to Order Tell me what you’d like – fancy restaurant Significant design element in order creation Don’t know possibilities of what customers might buy

What do you think? Which method is best? What kinds of uncertainty are involved in each? What determines customer service in each? What is the decoupling point in each system?

Communication with Depts. SOP – give forecasts, get prod. Plans Capacity: material (MTS), labor (MTO) Timing of deliveries & production Master Production Scheduling Detailed order info to MPS Status of each order Figs 2.5, 2.6

Forecasting Framework Fig. 2.7, p. 30

Aggregating Demand Long-term, or product-line forecasts more accurate than short term or detailed forecasts Monthly: Avg = 20, std dev =2 95%: 16-24 which is +/- 20% Annual: Avg = 20 * 12 = 240 Std. Dev = 2 * sqrt(12) = 6.9 95%: 226-254, which is +/- 5.8% Easier to forecast demand for components than for sales of particular car configurations.

Aggregating Demand Individual item forecasts must add up to correct total Individual item percentage of total probably constant Pyramid forecasting – bring things into alignment Force people to accept higher targets without “owning” them

Predicting Demand

Shared components Grand Prix Grand Am Grand Prix

2006 Solstice MSRP around $20,000

HP Inkjet Printers Printers made in Vancouver, sent via ship through Panama Canal to Europe Europe warehouse stocks inventory by country physically different-- power supply manuals different languages Substitution not allowed Re-supply time very long

Euro Plugs No standardized power supplies for Europe Different power supply for every country.

HP Inkjet Printers Redesigned printers so that power supply added in Europe Re-engineer product, power supply Assembly done in a warehouse (Quality?) Manuals added in Europe Many expensive changes Store ‘vanilla’ boxes Postpone point of differentiation

Delayed Customization Before Production Storage Shipping Storage After

Benetton Benetton sweaters made of undyed wool, dyed once demand is known Dyeing LT much faster than production How many undyed sweaters to make? How many Red, Green, Blue, also, if this production process is cheaper, and you know you’ll sell some minimum amount?