Manufacturing Planning and Control MPC 6th Edition Chapter 2

Demand Management The Demand Management (DM) process determines how a firm integrates information from customers (both internal and external) into the MPC system. Activities include demand determination, converting customer orders into delivery promises, and balancing supply with demand.

Shaping DM to match the manufacturing environment Agenda What is DM? Benefits of DM Role of DM Shaping DM to match the manufacturing environment Information and DM Day-to-Day DM Principles

Demand Management in MPC Demand management provides a link to The marketplace Sister plants Warehouses Other internal and external customers Demand management functions Information gathering Communicating with customers Identifying all sources of demand

Demand Management in the MPC System Marketplace (customers and other demand sources Sales and operations planning Resource Planning Demand management MPC Boundary Master production scheduling FRONT END

Planning and Control Demand management coordinates demand quantities and timing with the planning and control activities of the company Planning occurs mainly in the SOP module Control determines how capacity will be converted into products

Execution The company executes the plan as actual demand information becomes available The control function determines how the plans will be modified to accommodate forecast errors and other changes in assumptions Most control functions are located in the MPS module

Forecasts are estimates of what might occur in the marketplace Forecast versus Plan Forecasts are estimates of what might occur in the marketplace Plans specify how the firm will respond to these forecasts The plan may look significantly different from the forecast–because of other considerations (staffing, capacity, etc.) Managers can’t be held responsible for forecast errors, but should be held responsible for failing to execute the plan

Independent versus Dependent Demand The source of demand determines its type Independent – Customer demand that is not directly influenced by the actions of the firm (e.g. customer orders) Dependent – Demand that is driven by the plans and activities of the firm (e.g. components, warehouse demand)

Demand Management and MPC Environment DM must conform to the strategy of the firm, capabilities of manufacturing, and needs of customers These define the MPC environment MPC environment is defined by customer order decoupling point The point where demand changes from independent to dependent Alternatively, order penetration point

Make-to-Stock Customer demand is filled from finished goods inventory (cosmetics, grocery items) Key focus of demand management is maintenance of finished goods inventories Physical distribution is a key concern

Assemble-to-Order Customer requirements are met by a combination of standard options (personal computers, fast food) Primary task of demand management is to define the customer’s order in terms of components and options (configuration management)

Make-to-Order Items built to customer specifications, starting with raw materials (airplanes) Primary task of demand management is gathering information about customer needs and coordinating with manufacturing

Engineer-to-Order Firm works with the customer to design the product, then produces the product, starting with raw materials (ships, bridges) Primary task of demand management is gathering information about customer needs and coordinating with engineering and manufacturing

MPC Environments Inventory Location Suppliers Raw materials Work-in-process Finished goods Make-to-Stock Assemble-to-Order Make-to-Order Engineer-to-Order Independent Dependent Decoupling Points MPC Environment

Key Demand Management Tasks by Environment Make-to-Stock Assemble-to-Order Make-to-Order/ Engineer-to-Order Information Provide forecasts Configuration management Product specifications Planning Project inventory levels Determine delivery dates Provide engineering capacity Control Assure customer service levels Meet delivery dates Adjust capacity to customer needs

Demand Management Communication Activities Connection Make-to-Stock Assemble-to-Order Make-to-Order/ Engineer-to-Order SOP Demand forecasts Demand forecasts, product family mix Demand forecasts, engineering detail MPS Actual demand Mix forecasts, actual demand Final configuration Customer(s) Next inventory replenishment Configuration issues, delivery date Design status, delivery date

Customer Interactions Demand management converts customer orders into detailed MPC actions Make-to-Stock–resupply of inventory Assemble-to-Order–conversion of customer request to promise date Make(Engineer)-to-Order–conversion of customer request to product specifications and promise date

Information Use in DM Make-to-Knowledge–replacing forecasts with knowledge of customer requirements Information channels (EDI, information sharing, etc.) enhance knowledge of customers’ inventory, requirements, and plans

Data Capture and Monitoring Data is needed in two categories Overall market data–needed for sales and operations planning Detailed product mix–used for master production scheduling and customer order promising It is important to capture actual data wherever possible

Data Capture and Monitoring Data is needed in two categories Overall market data–needed for sales and operations planning Detailed product mix–used for master production scheduling and customer order promising It is important to capture actual data wherever possible

Customer Relationship Management Make-to-Stock–capturing customer demand can help determine demand and mix trends Assemble-to-Order/Make-to-Order–customer information can provide information concerning design and mix preferences

Outbound Product Flow Physical distribution of products is planned using information from the demand management function Short-term transportation schedules are developed using information such as customer delivery promise dates, inventory resupply shipments, interplant shipments, etc.

Demand Management Elements Organization–responsibility for DM activities can be distributed throughout the firm Flexibility requires rules to avoid conflicts and unintended consequences Monitoring–data must be accurate, timely, and appropriate Communication is critical when inputs or outputs change Balancing supply and demand–intelligence on actual conditions provides the basis for changes to plans

Collaborative Planning, Forecasting, and Replenishment (CPFR) Designed to improve competitiveness by facilitating communication between suppliers and retailers Goal: reducing variance between supply and demand Developed by the Voluntary Interindustry Commerce Standards Association

CPFR Steps 1 Establish collaborative relationship–may require process redesign 2 Create joint business plan 3 Create sales forecast 4 Identify exceptions to the sales forecast 5 Resolve/collaborate on exception items

CPFR Steps 6 Create order forecast 7 Identify exceptions to order forecast 8 Resolve/collaborate on exception items 9 Generate order

Principles Demand management systems and procedures must be in alignment with the market environment All product resource demands must be identified and accounted for when forecasting Data capture must include not only sales, but also knowledge, trends, systems performance, and demand management performance

Principles Implementing CPFR can lead to important organizational and business process improvements for both the customer and supplier The CPFR process can improve customer service, sales, inventory, and margin performance for both the customers and supplier in a supply chain

Quiz – Chapter 2 Demand Management (DM) includes which of the following activities? Forecasting Product shipping Entering customer orders The customer order decoupling point is best defined as ____________ In an Assemble-to-Order environment, the most likely point where customer order decoupling would take place is ______________ Sales and Operations Planning can be completed at which of the following levels Product Family Region Organizational Unit The main goal of a Collaborative Planning, Forecasting, and Replenishment (CPFR) process is to _________________