1. Demand Management Dr. Ron Lembke SCM 461

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

3. 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? Somebody decides

4. Independent vs. Dependent Demand  Feeding manufacturing, demand for parts is dependent on manufacturing plan  Sales to customers are independent of our (production) activities. # snowboards # tops depends on # boards to be made  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

5. 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?

6. 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  Combinations:  31 ice cream * 4 sauces * 12 sprinkles = 1,488

7. Homework  Figure out the total number of combinations of some (one) thing you like to eat or drink:  Go there, write up # of options, and spell it all out for me, how many there are # lattes: soy, decaf, etc. Ice cream Pizza Beer samplers Burritos Burgers

8. 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 – wedding dinner  Significant design element in order creation  Don’t know possibilities of what customers might buy

9. 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?  What kinds of capacity do we need in each?

10. 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 Resource Planning Master Production Scheduling Sales and Operations Planning Demand Management

11. Information Use  Make to Knowledge Use EDI, POS data to know what your customers are going to be ordering (Not forecasting)  Wal-Mart and Philips  Forecast based on: Sales? Demand? Shipments?

12. Forecasting Framework  Fig. 2.7, p. 30

13. 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.

14. 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

15. Predicting Demand

16. Shared components Grand Prix Grand Am Grand Prix

17. End of Pontiac  Last American-produced Pontiac G6 – Nov. 25, 2009  Canadian market-G3 Wave, GM Daewoo, S. Korea, Dec. 2009