1. Andy Guo Planning Demand and Supply in a Supply Chain 【本著作除另有註明外，採取創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版授權釋出】創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版 第三單元 (1) ： Planning Demand and Supply in a Supply Chain 郭瑞祥教授 1

2. Andy Guo Outline ►Part I: Aggregate planning ►Part II: Managing predictable variability 2

3. Andy Guo Manage Predictable Variability ►Predicable variability is change in demand that can be forecasted. ►A firm must choose two broad options: –Manage supply (manage capacity and manage inventory) –Manage demand ►Often companies divide the task –Marketing manages demand  maximize revenue –Operations manage supply  minimize cost ►Separating the supply and demand decisions makes it difficult to coordinate the supply chain ►Designing product flexibility –Lawn mower manufacturers also make snowblowers 3

4. Andy Guo Managing Predictable Variability - Managing Supply - ►Managing inventory –T–Time flexibility from workforce –U–Use of seasonal workforce –U–Use of subcontracting –U–Use of dual facilities – dedicated and flexible –D–Designing product flexibility into the production processes ►Managing capacity –U–Using common components across multiple products –B–Building inventory of high demand or predictable demand products 4

5. Andy Guo Managing Predictable Variability - Managing Demand - ►Demand can be influenced using pricing and other forms of promotions. –I–Impact of the promotion on demand –P–Product margins –C–Cost of holding inventory –C–Cost of changing capacity ►Demand increase from promotion results from three factors: ►Four key factors influence the timing of a trade promotion: –M–Market growth –S–Stealing market share –F–Forward buying Microsoft Office 2010 多媒體藝廊 5

6. Andy Guo Scenario 4: Aggregate Planning and Promotion at Red Tomato MonthDemand Forecast January3,000 February2,400 March2,560 April3,800 May2,200 June2,200 ►Consider the discount offering in off-peak month of January. The demand forecast is shown below: ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. Microsoft Office 2010 多媒體藝廊 6

7. Andy Guo Scenario 4: Aggregate Planning and Promotion at Red Tomato MonthDemand Forecast January3,000 February2,400 March2,560 April3,800 May2,200 June2,200 ►Consider the discount offering in off-peak month of January. The demand forecast is shown below: ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. 7

8. Andy Guo Optimal Aggregate Plan for Scenario 4 Perio d t No. Hired H t No. Laid Off L t Workfor ce Size W t Overtim e O t Inventor y I t Stocko ut S t Subcontr act C t Total Producti on P t 0008001,00000 1015650610002,610 200650820002,610 300650870002,610 400650032002,610 50065090002,610 600650500002,610 ►Total cost over planning horizon = $421,915 ►Revenue over planning horizon = $643,400 ►Profit over planning horizon = $221,485 8

9. Andy Guo Conclusions based on Scenarios 1, 4 & 5 Scenario 1Scenario 4Scenario 5 Cost422,275421,915438,857 Revenue640,000643,400650,140 Profit217,725221,485211,283 9

10. Andy Guo Scenario 5: Aggregate Planning and Promotion at Red Tomato Demand fluctuation has increased relative to the profile in scenario 1. ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. ►Consider the discount offering in peak month of April. The demand forecast is shown below: MonthDemand Forecast January1,600 February3,000 March3,200 April5,060 May1,760 June1,760 Microsoft Office 2010 多媒體藝廊 10

11. Andy Guo Scenario 5: Aggregate Planning and Promotion at Red Tomato Demand fluctuation has increased relative to the profile in scenario 1. ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. ►Consider the discount offering in peak month of April. The demand forecast is shown below: MonthDemand Forecast January1,600 February3,000 March3,200 April5,060 May1,760 June1,760 11

12. Andy Guo Optimal Aggregate Plan for Scenario 5 Peri od t No. Hired H t No. Laid Off L t Workfo rce Size W t Overti me O t Invento ry I t Stock out S t Subcont ract C t Total Produc tion P t 0008001,00000 10146602,047002,647 2006601,693002,647 3006601,140002,647 40066001,27302,647 500660038702,647 600660500002,647 ►Total cost over planning horizon = $438,857 ►Revenue over planning horizon = $650,140 ►Profit over planning horizon = $211,283 12

13. Andy Guo Conclusions based on Scenarios 1, 4 & 5 Scenario 1Scenario 4Scenario 5 Cost422,275421,915438,857 Revenue640,000643,400650,140 Profit217,725221,485211,283 13

14. Andy Guo Conclusions based on Scenarios 1, 4 & 5 ►A price promotion in January (scenario 4) results in a higher profit than no promotion (scenario 1). A promotion in April (scenario 5) results in a lower profit than no promotion (scenario 1). ►Even though revenues are higher when promotions is offered in April, the increase in operating costs makes it a less profitable option. ►Red Tomato should offer the discount in the off-peak month of January. ►The above conclusions could be different if Red Tomato were in a situation in which most of the demand increase comes from market growth or stealing market share rather than forward buying (see scenarios 6 & 7) ►It is not appropriate for a firm to leave pricing decisions solely in the domain of marketing and aggregate planning solely in the domain of operations. It is crucial that forecasts, pricing, and aggregate planning be coordinated in the supply chain. 14

15. Andy Guo Scenario 6: Aggregate Planning and Promotion at Red Tomato ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. ►Consider the discount offering in off-peak month of January. The demand forecast is shown below: MonthDemand Forecast January4,440 February2,400 March2,560 April3,800 May2,200 June2,200 15

16. Andy Guo Scenario 6: Aggregate Planning and Promotion at Red Tomato ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. ►Consider the discount offering in off-peak month of January. The demand forecast is shown below: MonthDemand Forecast January4,440 February2,400 March2,560 April3,800 May2,200 June2,200 16

17. Andy Guo Optimal Aggregate Plan for Scenario 6 Peri od t No. Hired H t No. Laid Off L t Workfo rce Size W t Overti me O t Invento ry I t Stock out S t Subcont ract C t Total Produc tion P t 0008001,00000 100800024003,200 2011690140002,780 300690360002,780 400690066002,780 50069008002,780 600690500002,780 ►Total cost over planning horizon = $456,750 ►Revenue over planning horizon = $699,560 ►Profit over planning horizon = $242,810 17

18. Andy Guo Conclusions based on Scenarios 1, 6 & 7 Scenario 1Scenario 6Scenario 7 Cost422,275456,750536,200 Revenue640,000699,560783,520 Profit217,725242,810247,320 18

19. Andy Guo Scenario 7: Aggregate Planning and Promotion at Red Tomato Demand fluctuation has increased relative to the profile in scenario 1. ►Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward. ►Consider the discount offering in peak month of April. The demand forecast is shown below: MonthDemand Forecast January1,600 February3,000 March3,200 April8,480 May1,760 June1,760 19

20. Andy Guo Optimal Aggregate Plan for Scenario 7 Period t No. Hired H t No. Laid Off L t Workfor ce Size W t Overtim e O t Inventor y I t Stocko ut S t Subcon tract C t Total Production P t 0008001,00000 1008002,600003,200 2008002,800003,200 3008002,800003,200 40080002,3801003,200 500800094003,200 600800500003,200 ►Total cost over planning horizon = $536,200 ►Revenue over planning horizon = $783,520 ►Profit over planning horizon = $247,320 ►When forward buying is a small part of the increase in demand from discounting, Red Tomato should offer the discount in the peak demand month of April. 20

21. Andy Guo Conclusions based on Scenarios 1, 6 & 7 Scenario 1Scenario 6Scenario 7 Cost422,275456,750536,200 Revenue640,000699,560783,520 Profit217,725242,810247,320 21

22. Andy Guo Performance Under Different Scenarios Regular Price Promotion Price Promotion Period Percent Increase in Demand Percent Forward Buy ProfitAverage Inventory $40 NA $217,725895 $40$39January20 % $221,485523 $40$39April20% $211,283938 $40$39January100%20%$242,810208 $40$39April100%20%$247,3201,492 $31 NA $73,725895 $31$30January100%20%$84,410208 $31$30April100%20%$69,1201,492 1 4 5 6 7 22

23. Andy Guo Conclusions Regarding Promotions ►Pricing and aggregate planning must be done jointly. ►Average inventory increases if a promotion is run during the peak period and decreases if run during off-peak period. ►Promotion during the peak period may decrease overall profitability if a significant fraction of the demand increase results from a forward buy. ►Promotion during the peak period may increase overall profitability if forward buying becomes a smaller fraction of the demand increase. ►As product margin declines, promotion during the peak period becomes less profitable. 23

24. Andy Guo Summary of Impact on Promotion Timing FactorFavored timing High forward buyingLow demand period High stealing market shareHigh demand period High growth of marketHigh demand period High marginHigh demand period Low marginLow demand period High holding costsLow demand period High cost of changing capacityLow demand period 24

25. Andy Guo 6, 10 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合約及著 作權法第 46 、 50 、 52 、 65 條合理使用。 Microsoft 服務合約 頁碼作品授權條件作者 / 來源 5 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合約及著 作權法第 46 、 50 、 52 、 65 條合理使用。 Microsoft 服務合約 版權聲明 25