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DEMAND MANAGEMENT1

THE STRATEGIC DEMAND MANAGEMENT PROCESS2

THE OPERATIONAL DEMAND MANAGEMENT PROCESS3

HOW DEMAND MANAGEMENT AFFECTS ECONOMIC VALUE ADDED (EVA)4

HOW DEMAND MANAGEMENTSUPPORT BUSINESS STRATEGY5The 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 plansDemand information is used more for tactical and operational than for strategic purposes Demand Management6Figure 7.1 Supply / Demand MisalignmentSource: Acenture, Stanford and Northwestern Universities, Customer Driven Demand Networks: Unlocking the Hidden Value in the Personal Computer Supply Chain (Accenture, 1997) 15

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

8External balancing methodsChange demandChange lead time Internal balancing methodsProduction flexibilityInventoryBalancing Supply and Demand9Factors Affecting DemandIndependent demandDependent demand Simple Moving AverageWeighted Moving AverageExponential SmoothingAdjusted Exponential Smoothing for TrendSeasonal Influences on ForecastsTraditional Forecasting10Table 7.2Seasonal Moving Average ForecastSource: Robert A. Novak, Ph.D.

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Table 7.3Weighted Moving Average ForecastSource: Robert A. Novak, Ph.D.12Table 7.4Exponential Smoothing ForecastSource: Robert A. Novak, Ph.D.

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

14Cumulative sum of forecast errors (CFE)Mean squared error (MSE)Mean absolute deviation (MAD)Mean absolute percentage error (MAPE)Forecast Errors15Table 7.9Forecast ErrorSource: Robert A. Novak, Ph.D.

16Step 1: Run sales forecast reportsStep 2: Demand planning phaseStep 3: Supply planning phaseStep 4: Pre-S&OP meetingStep 5: Executive S&OP meeting

Sales and Operations Planning17

Figure 7.2Monthly S&OP ProcessSource: Thomas F. Wallace, Sales and Operations Planning: The How-to Book (2000) 4318

INTEGRATION OF SALES FORECASTING AND PRODUCTION19Using internet technologies retailers, distributors, and manufacturers collaborate on operational planning.Transportation providers have now been included with the concept of collaborative transportation management (CTM).Collaborative Planning, Forecasting, & Replenishment20Figure 7.3CPFR ModelSource: Larry Smith, West Marine: A CPFR Success Story, Supply Chain Management Review (March 2006) 31

21Channels of DistributionA distribution channel can be thought of as the physical structures and intermediaries through which goods, services, information, and finances flow.Direct to Customer (DTC) FulfillmentAdvantages: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 centerconflict between a store order and an Internet order

Fulfillment Models22

Figure 7.5Logistics and Marketing ChannelsSource: Robert A. Novak Ph.D.23Figure 7.7Direct to Consumer FulfillmentSource: Robert A. Novak Ph.D.

24Integrated Fulfillment Retailer maintains both a bricks-and-mortar and clicks-and-mortar presenceoperates one distribution network to service both channels Advantagelow start-up costsexisting network can service bothDisadvantagesorder profile will change with addition of Internet orderscase lots versus eacheswould require a fast pick, or broken case operation conflict might arise between a store order and an Internet order

Fulfillment Models, continued25Figure 7.8Integrated FulfillmentSource: Robert A. Novak Ph.D.

26Dedicated FulfillmentBoth 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.

Fulfillment Models, continued27Figure 7.9Dedicated FulfillmentSource: Robert A. Novak Ph.D.

28Outsourced FulfillmentAssumes 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

Fulfillment Models, continued29Figure 7.10Outsourced FulfillmentSource: Robert A. Novak Ph.D.

30Drop Shipped FulfillmentAlso called direct store delivery, vendor delivers directly to retailer, bypassing retailers distribution network. Works best for products that have a short shelf life.Advantages:reduction of inventory in the distribution networkvendor has direct control of its inventories Disadvantage:possible reduction of inventory visibility

Fulfillment Models, continued31Figure 7.11Drop-Shipped FulfillmentSource: Robert A. Novak Ph.D.

32Store FulfillmentThe order is placed through the Internet site and sent to the nearest store for customer pick up.Advantages:short lead time to the customerlow start-up costs for the retailerreturns can be handled through the storeproduct availability in consumer units Disadvantages:reduced control and consistency over order fillconflict may arise between inventoriesmust have real-time visibility to in-store inventoriesstores lack sufficient space to store product

Fulfillment Models, continued33Figure 7.12Store FulfillmentSource: Robert A. Novak Ph.D.

34Flow-Through FulfillmentProduct 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 networkDisadvantage:Storage space at the store for pickup items a problem

Fulfillment Models, continued35Figure 7.13Flow-Through FulfillmentSource: Robert A. Novak Ph.D.

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SUMMARY OF SELECTED FORECASTING TECHNIQUES37

SUMMARY OF SELECTED FORECASTING TECHNIQUES (COUTINUE..)38

SUMMARY OF SELECTED FORECASTING TECHNIQUES (CONTINUED)39

DETERMINE APPROPRIATE FORECASTING APPROACHESDemand VolumeDemand Variability40SummaryOutbound-to-customer logistics systems have received the most attention in many companies; but, even in todays 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.

41Although 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. Summary, continued42The 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.Summary, continued43