Section E: Demand Management Flashcards
Forecasts are used as inputs to: Strategy and manufacturing business plans, such as the acquisition of new plants or equipment Medium-term production planning at the product family level Short-term master scheduling at the unit level.
Forecasts are used as inputs to:
- Strategy and manufacturing business plans, such as the acquisition of new plants or equipment
- Medium-term production planning at the product family level
- Short-term master scheduling at the unit level.
Demand Management
Demand Management:
1) The function of recognizing all demands for goods and services to support the marketplace. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results.
2) In marketing, the process of planning, executing, controlling, and monitoring the design, pricing, promotion, and distribution of products and services to bring about transactions that meet organizational and individual needs.
Marketing Strategy
Marketing Strategy:
The basic plan the marketing function expects to use to achieve its business and marketing objectives in a particular market. Includes marketing expenditures, marketing mix, and marketing allocation.
The combination of the tools available to demand-side professionals to determine, promote, and prioritize demand is called the marketing mix, or the four Ps.
The four Ps:
A set of marketing tools to direct the business offering to the customer.
The four Ps are product, price, place, and promotion.
The Dictionary defines a total cost curve as follows: 1) In cost-volume-profit (breakeven) analysis, the total cost curve is composed of total fixed and variable costs per unit multiplied by the number of units provided. Breakeven quantity occurs where the total cost curve and total sales revenue curve intersect. 2) In inventory theory, the total cost curve for an inventory item is the sum of the costs of acquiring and carrying the item.
The Dictionary defines a total cost curve as follows: 1) In cost-volume-profit (breakeven) analysis, the total cost curve is composed of total fixed and variable costs per unit multiplied by the number of units provided. Breakeven quantity occurs where the total cost curve and total sales revenue curve intersect. 2) In inventory theory, the total cost curve for an inventory item is the sum of the costs of acquiring and carrying the item.
Break-even Point
Break-even Point:
The level of production or the volume of sales at which operations are neither profitable nor unprofitable.
The break-even point is the intersection of the total revenue and total cost curves.
Break-even formula (in units)
Fixed Cost / (Price per unit - Variable cost per unit)
Customer Relationship Management (CRM)
Customer Relationship Management (CRM):
A marketing philosophy based on putting the customer first. Involves the collection and analysis of information designed for sales and marketing decision support (in contrast to enterprise resources planning information) to understand and support existing and potential customer needs.
Includes account management, catalog and order entry, payment processing, credits and adjustments, and other functions.
Customer relationship management is an external-facing activity that may be performed by multiple persons at an organization who come into contact with customers, including sales, marketing, customer service, and supply chain management professionals.
Here are some of the important ways order management can promote both excellent customer service and operations efficiency:
Order entry and tracking. This needs to be accurate, and tracking should be available on demand by the customer. Minimizing entry time directly reduces lead times.
Order promising. The system should link to ERP to show actual inventory or production status so customers can be given accurate promises of delivery dates and quantities. Setting realistic expectations promotes customer satisfaction.
Customer service. Customer service will handle inquiries and complaints and authorize returns or repairs.
Documentation and reporting. Order management releases electronic or paper records, including shipping documentation, invoices, and sales orders. A sales order is used internally to authorize release of inventory or is sent to the master planner to authorize production planning (or design and engineering in some cases). The customer also receives a copy of the sales order stating terms and conditions of acceptance. Reporting includes information for sales history, customer service history, and accounting.
Demand Planning:
Demand Planning:
The process of combining statistical forecasting techniques and judgment to construct demand estimates for products or services (both high and low volume; lumpy and continuous) across the supply chain from the suppliers’ raw materials to the consumer’s needs.
Items can be aggregated by product family, geographical location, product life cycle, and so forth, to determine an estimate of consumer demand for finished products, service parts, and services.
Numerous forecasting models are tested and combined with judgment from marketing, sales, distributors, warehousing, service parts, and other functions.
Actual sales are compared to forecasts provided by various models and judgments to determine the best integration of techniques and judgment to minimize forecast error.
Demand planning is basically forecasting and forecast tracking. However, demand planning is the recognition of all demand, and the second major source of demand is actual orders from internal or external customers. Internal customers could be other plants or subsidiaries or owned distribution centers.
Demand vs Sales
What is demand? Demand is what the market or customer base is requesting. When demand exceeds supply, sales will be less than demand, but by how much may be hard to know. Demand is not sales, but sales plus backorders and a few other things can be used to estimate demand. When retail shelves are empty, any number of customers may have tried to buy the product and may then have gone elsewhere, and a stockout is just one example of why demand is often hard to estimate.
Independent vs Dependent Demand
Demand can be independent or dependent.
The key difference is that independent demand originates from sources outside of the control of the organization.
Dependent demand originates from internal sources or sources the organization can control.
Independent demand
Independent demand : The demand for an item that is unrelated to the demand for other items. Demand for finished goods, parts required for destructive testing, and service parts requirements are examples of independent demand. Dependent demand : Demand that
Dependent demand
Dependent demand : Demand that is directly related to or derived from the bill-of-material structure for other items or end products. Such demands are therefore calculated and need not and should not be forecast. A given inventory item may have both dependent and independent demand at any given time. For example, a part may simultaneously be the component of an assembly and sold as a service part.
The bill of material
The bill of material is basically a list of all the parts or ingredients that comprise a single unit. Items can be subject to both independent and dependent demand.
