1. DEMAND MANAGEMENT

2. Learning Objectives
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.

3. Learning Objectives, continued
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.

4. Learning Objectives, continued
Identify the key steps in the order fulfillment process and appreciate the various channel structures that might be used in the fulfillment process.

5. Demand Management
The efforts to estimate and manage customer’s demand, and using the information to form operating decisions.
In essence, it is to further the ability of the firms on the supply chain, to collaborate on activities related to the flow of product, services, information, and capital.

6. Figure 7.1 Supply / Demand Misalignment
Source: Acenture, Stanford and Northwestern Universities, Customer Driven Demand Networks: Unlocking the Hidden Value in the Personal Computer Supply Chain (Accenture, 1997) 15

7. Table 7.1 Demand Management Supports Strategy
Source: Jim R. Langbeer II, “Aligning Demand Management with Human Strategy, Supply Chain Management Review (May/Jun 2000) 58

8. Balancing Supply and Demand
External balancing methods
Change demand
by changing price
Change lead time
by increasing the lead time
Internal balancing methods
Production flexibility
To quickly change the production line setup from one to another product.
Inventory

9. Traditional Forecasting
Factors Affecting Demand
Independent demand
Dependent demand
Simple Moving Average
Weighted Moving Average
Exponential Smoothing
Adjusted Exponential Smoothing for Trend
Seasonal Influences on Forecasts

10. Table 7.2 Seasonal Moving Average Forecast
Source: Robert A. Novak, Ph.D.

11. Table 7.3 Weighted Moving Average Forecast
Source: Robert A. Novak, Ph.D.

12. Table 7.4 Exponential Smoothing Forecast
Source: Robert A. Novak, Ph.D.

13. Table 7.5 Trend Adjusted Exponential Smoothing Forecast
Source: Robert A. Novak, Ph.D.

14. Forecast Errors Cumulative sum of forecast errors (CFE)
Mean squared error (MSE)
Mean absolute deviation (MAD)
Mean absolute percentage error (MAPE)

15. Table 7.9 Forecast Error
Source: Robert A. Novak, Ph.D.

16. Sales and Operations Planning (SOP)
Step 1: Run sales forecast reports
Step 2: Demand planning phase
Step 3: Supply planning phase
Step 4: Pre-SOP meeting
Step 5: Executive SOP meeting

17. Figure 7.2 Monthly S&OP Process
Source: Thomas F. Wallace, Sales and Operations Planning: The How-to Book (2000) 43

18. Collaborative Planning, Forecasting, & Replenishment (CPFR)
Retailers, distributors, and manufacturers collaborate on operational planning (using internet technologies)
Transportation providers have now been included with the concept of collaborative transportation management.
CPFR was first attempted by Walmart and Johnson & Johnson in 1995 for its Listerine product line.
To rationalize inventory, reduce out of stock occurrences and increase their forecast accuracy.

19. Figure 7.3 CPFR Model
Source: Larry Smith, “West Marine: A CPFR Success Story”, Supply Chain Management Review (March 2006) 31

20. CPFR Business Model Planning Phase Forecasting Phase
Develop front-end agreement
Create joint business plan
Forecasting Phase
Create sales forecast
Identify exceptions for sales forecast
Resolve/collaborate on exception items
Create order forecast
Identify exceptions for order forecast
Replenishment Phase
Order generation
Delivery execution

21. Distribution Channels
Channels of Distribution
A logistics channel is the means by which products flow physically from where they are available to where thy are needed
A distribution channel can be thought of as the physical structures and intermediaries (such as distributors, wholesalers, retailers, transportation providers, and brokers) through which goods, services, information, and finances flow.

22. Figure 7.5 Logistics and Marketing Channels
Source: Robert A. Novak Ph.D.

23. Fulfillment Models Integrated fulfillment Dedicated fulfillment
Outsourced fulfillment
Drop-shipped fulfillment
Store fulfillment
Flow-through fulfillment

24. Figure 7.7 Direct to Consumer Fulfillment
Source: Robert A. Novak Ph.D.

25. Integrated Fulfillment
Fulfillment Models, continued
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

26. Figure 7.8 Integrated Fulfillment
Source: Robert A. Novak Ph.D.

27. Dedicated Fulfillment
Fulfillment Models, continued
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
Retailer maintains both a “bricks-and-mortar” and “clicks-and-mortar” presence.

28. Figure 7.9 Dedicated Fulfillment
Source: Robert A. Novak Ph.D.

29. Outsourced Fulfillment
Fulfillment Models, continued
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

30. Figure 7.10 Outsourced Fulfillment
Source: Robert A. Novak Ph.D.

31. Drop Shipped Fulfillment
Fulfillment Models, continued
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

32. Figure 7.11 Drop-Shipped Fulfillment
Source: Robert A. Novak Ph.D.

33. Fulfillment Models, continued
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

34. Figure 7.12 Store Fulfillment
Source: Robert A. Novak Ph.D.

35. Flow-Through Fulfillment
Fulfillment Models, continued
Flow-Through Fulfillment
Product is picked and packed at a 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

36. Figure 7.13 Flow-Through Fulfillment
Source: Robert A. Novak Ph.D.

37. 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.

38. Summary, continued
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. 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.

39. Summary, continued
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.