Section E: Demand Management

Question 1

Demand can be

Answer 1

independent or dependent

Question 2

Independent demand originates from

Answer 2

sources outside of the control of the organization

Question 3

Dependent demand originates from

Answer 3

internal sources or sources the organization can control.

Question 4

Often independent demand will be for items that the organization

Answer 4

sells as individual units and dependent demand will be for materials used to make those units.

Question 5

Independent demand is determined using

Answer 5

forecasts and order management

Question 6

Dependent demand is not forecasted; instead

Answer 6

it is calculated as part of the materials requirements planning process.

Question 7

The demand for the 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

Answer 7

Independent Demand

Question 8

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 give time. For example, a part may simultaneously be the component of an assembly and sold as a service part.

Answer 8

Dependent Demand

Question 9

Independent demand comes from a number of internal and external sources:

Answer 9

• Forecasting
• end customers (finished goods and service parts)
• replenishment orders
• interplant demand or Intercompany transfers (e.g., between subsidiaries)
• internal use (research and development, quality control, destructive testing, marketing use)

Question 10

When demand is recorded over time and then visualized in chart form,

Answer 10

patterns and trends may become apparent.

Question 11

Several observations can be made about the patterns of demand for products and services:

Answer 11

• Seasonality
• Trend
• Cycle
• Random variation

Question 12

Seasonality

Answer 12

A predictable repetitive pattern of demand measured within a year where demand grows and declines. These are calendar-related patterns that can appear annually, quarterly, monthly, weekly, daily, and/or hourly.

Question 13

The key point about seasonality is that

Answer 13

it repeats over the analysis period and thus can be isolated from other sources of variation and removed temporarily so that it will not influence forecasting.

Question 14

Trend

Answer 14

A general upward or downward movement of a variable over time (e.g., demand, process attribute). Trends can also be flat. If demand data are put into a program such as Microsoft Excel, both a chart and a trend can be automatically calculated.

Question 15

Trends can be influenced to varying degrees internally by things like

Answer 15

promotions and externally by things outside one’s control, such as an economic cycle.

Question 16

Cycle

Answer 16

Cycles usually refer to the wavelike patterns observed in the growth and recession trends of the economy over years. Unlike seasonality, economic cycles do not repeat over a predictable period of time, so this type of forecasting is left to economists.

Question 17

Another example of a cycle that could influence a trend is

Answer 17

a product’s life cycle.

Question 18

Random Variation

Answer 18

Random variation is any variation left over after seasonality and trends have been accounted for. Random variation reflects that customers vary when, where, and in what quantities they buy products; the level of variation can vary greatly. If random variation is all, forecasting will be fairly accurate. If it is large, errors will be high.

Question 19

As the description of random variation indicates,

Answer 19

some demand patterns will be more volatile than others.

Question 20

Stable demand patterns may have

Answer 20

fairly steady trends, predictable seasonality, and minimal random variation.

Question 21

Products with stable demand patterns can be forecasted with

Answer 21

low error, so make-to-stock manufacturing environments can be used profitably.

Question 22

Products and services with dynamic demand patterns, such as innovative products, may have

Answer 22

shifting trends, no seasonality or seasonality that shifts unpredictbly, and/or a high degree of random variation that masks trends and seasonality. In these cases, forecasting is trying to find only the base (average) demand for use in planning; more flexible manufacturing strategies may be needed. Another option might be to find ways to make a dynamic demand pattern more stable (e.g, communicate better to reduce or eliminate the bullwhip effect)

Question 23

Forecast

Answer 23

an estimate of future demand. A forecast can be constructed using quantitative methods, qualitative methods, or a combination of methods, and it can be based on extrinsic (external) or intrinsic (internal) factors. Various forecasting techniques attempt to predict one or more of the four components of demand: cyclical, random, seasonal, or trend.

Question 24

Forecasting

Answer 24

The business function that attempts to predict sales and use of products so they can be purchased or manufactured in appropriate quantities in advance.

Question 25

From the perspective of manufacturing planning and control, forecasts are used as

Answer 25

inputs at strategic, tactical, and operational planning levels, and each forecast is for a diferent time horizon (how far out you are looking).

Question 26

the bullwhip effect can lead to a great deal of variability in orders from the downstream supply chain.

Answer 26

This leads to the first principle of forecasting: forecasts are wrong most of the time.

Question 27

Second principle of forecasting:

Answer 27

always be sure there is an estimate of forecast reliability or error rates for each forecast.

Question 28

Wider ranges equate to lower confidence levels and more dynamic demand patterns.

Answer 28

narrower ranges equate to higher confidence and stable demand patterns.

Question 29

Third principle of forecasting:

Answer 29

forecasts are more accurate for product families than for individual items.

Question 30

fourth principle of forecasting:

Answer 30

forecasting is more accurate in the near term than in the long term.