Chapter 7 DEMAND MANAGEMENT. ©2013 Cengage Learning. All Rights Reserved. May not be scanned,...

Chapter 7

DEMAND MANAGEMENTDEMAND MANAGEMENT

©2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

After reading this chapter, you should be able to do the following:

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.

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●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.

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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.

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Learning Objectives, continued


●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.

Demand Management


Figure 7.1

Supply / Demand Misalignment

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


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


●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

Balancing Supply and Demand


●Factors Affecting Demand• Independent demand

• Dependent demand

●Simple Moving Average●Weighted Moving Average●Exponential Smoothing●Adjusted Exponential Smoothing for Trend●Seasonal Influences on Forecasts

Traditional Forecasting


Table 7.2

Seasonal Moving Average Forecast

Source: Robert A. Novak, Ph.D.


Table 7.3

Weighted Moving Average Forecast



Table 7.4

Exponential Smoothing Forecast



Table 7.5Trend Adjusted Exponential Smoothing Forecast



●Cumulative sum of forecast errors (CFE)●Mean squared error (MSE)●Mean absolute deviation (MAD)●Mean absolute percentage error (MAPE)

Forecast Errors


Table 7.9

Forecast Error



●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

Sales and Operations Planning (SOP)


Figure 7.2

Monthly S&OP Process

Source: Thomas F. Wallace, Sales and Operations Planning: The How-to Book (2000) 43


●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.

Collaborative Planning, Forecasting, & Replenishment (CPFR)


Figure 7.3

CPFR Model

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


Planning Phase1. Develop front-end agreement

2. Create joint business plan

Forecasting Phase3. Create sales forecast

4. Identify exceptions for sales forecast

5. Resolve/collaborate on exception items

6. Create order forecast

7. Identify exceptions for order forecast

8. Resolve/collaborate on exception items

Replenishment Phase9. Order generation

10. Delivery execution

CPFR Business Model


●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.

Distribution Channels


Figure 7.5

Logistics and Marketing Channels

Source: Robert A. Novak Ph.D.


Fulfillment Models

1. Integrated fulfillment

2. Dedicated fulfillment

3. Outsourced fulfillment

4. Drop-shipped fulfillment

5. Store fulfillment

6. Flow-through fulfillment

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Figure 7.7

Direct to Consumer Fulfillment



●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

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Fulfillment Models, continued


Figure 7.8

Integrated Fulfillment



●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.

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Figure 7.9

Dedicated Fulfillment



●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

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Figure 7.10

Outsourced Fulfillment



●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

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Figure 7.11

Drop-Shipped Fulfillment



●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

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Figure 7.12

Store Fulfillment



●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

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Figure 7.13

Flow-Through Fulfillment



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.

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● 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.

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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.

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Summary, continued

Chapter 7 DEMAND MANAGEMENT. ©2013 Cengage Learning. All Rights Reserved. May not be scanned,...

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