Chapter 7 Demand Management Learning Objectives After reading this chapter, you should be able to do the following: Understand the critical importance of outbound-to-customer logistics systems. Appreciate the growing need for effective demand management as part of an organization’s overall logistics and supply chain expertise.

Learning Objectives (cont.) Know the types of forecasts that might be needed, and understand how collaboration among trading partners will help the overall forecasting and demand management processes. Understand the basic principles underlying the sales and operations planning process. Identify the key steps in the order fulfillment process and appreciate the various channel structures that might be used in the fulfillment process.

Many organizations place significant emphasis on outbound-to- customer logistics systems Chapter focus:  demand management  forecasting  Sales and Operations Planning (S&OP) process  collaborative forecasting approaches  fulfillment process and the processes and methods

Demand Management  The ability of firms throughout the supply chain to collaborate on activities related to the flow of product, services, information, and capital.  Problems in achieving goal: Lack of coordination between departments Too much emphasis on forecasts of demand, with less attention on the collaborative efforts and the strategic and operational plans Demand information is used more for tactical and operational than for strategic purposes

Direct-to-Customer (DTC) Fulfillment  Advantages: low start-up costs workforce efficiency because of consolidated operations  Disadvantages: the order profile will change (store orders in case and/or pallet quantities, consumer orders, “eaches” in smaller order quantities) products might not be available in consumer units (eaches) “fast pick,” or broken case, operation to be added to the distribution center conflict between a store order and an Internet order

Integrated Fulfillment  Retailer maintains both a “bricks-and-mortar” and “clicks-and- mortar” presence  operates one distribution network to service both channels  Advantage low start-up costs existing network can service both  Disadvantages order profile will change with addition of Internet orders case lots versus “eaches” would require a “fast pick,” or broken case operation conflict might arise between a store order and an Internet order

Dedicated Fulfillment  Both a store and an Internet presence with two separate distribution networks  Advantage: separate distribution network for store delivery and consumer delivery eliminates most of the disadvantages of integrated fulfillment  Disadvantage: duplicate facilities and duplicate inventories

Outsourced Fulfillment  assumes that another firm will perform the fulfillment  Advantages: low start-up costs for the retailer to service the Internet channel possible transportation economies  Disadvantage : loss of control over service levels

Drop-Shipped Fulfillment  also called direct store delivery, vendor delivers directly to retailer, bypassing retailer’s distribution network.  works best for products that have a short shelf life  Advantages: reduction of inventory in the distribution network vendor has direct control of its inventories  Disadvantage: possible reduction of inventory visibility

Store Fulfillment The order is placed through the Internet site and sent to the nearest store for customer pick up  Advantages : short lead time to the customer low start-up costs for the retailer returns can be handled through the store product availability in consumer units  Disadvantages: reduced control and consistency over order fill conflict may arise between inventories must have real-time visibility to in-store inventories stores lack sufficient space to store product

Flow-Through Fulfillment Product is picked and packed at distribution center, then sent to the store for pickup  Advantages: eliminates the inventory conflict avoids the cost of the “last mile” returns can be handled through the existing store network  Disadvantage : Storage space at the store for pickup items a problem

Summary  Outbound-to-customer logistics systems have received the most attention in many companies, but even in today’s customer service environment, outbound and inbound logistics systems must be coordinated.  Demand management may be thought of as “focused efforts to estimate and manage customers’ demand, with the intention of using this information to shape operating decisions.”  Although many forecasts are made throughout the supply chain, the forecast of primary demand from the end user or consumer will be the most important. It is essential that this demand information be shared with trading partners throughout the supply chain and be the basis for collaborative decision making.  Various approaches to forecasting are available, each serving different purposes.

Summary  Various approaches to forecasting are available, each serving different purposes.  The S&OP process has gained much attention in industry today. It serves the purpose of allowing a firm to operate from a single forecast.  The S&OP process is a continual loop involving participation from sales, operations, and finance to arrive at an internal consensus forecast.  CPFR is a method to allow trading partners in the supply chain to collaboratively develop and agree upon a forecast of sales. This allows for the elimination of inventories held because of uncertainty in the supply chain.  A number of distribution channel alternatives might be considered by organizations today. Effective management of the various choices requires coordination and integration of marketing, logistics, and finance within the firm, as well as coordination of overall channel-wide activities across the organizations in the channel.