DEMAND

MANAGEMENT

THE STRATEGIC DEMAND MANAGEMENT PROCESS

THE OPERATIONAL DEMAND MANAGEMENT PROCESS

HOW DEMAND MANAGEMENT AFFECTS ECONOMIC VALUE ADDED (EVA)

HOW DEMAND MANAGEMENTSUPPORT BUSINESS STRATEGY

Demand Management
The 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 plans
Demand information is used more for tactical
and operational than for strategic purposes
6

Figure 7.1

Supply / Demand Misalignment

Source: Acenture, Stanford and Northwestern Universities, Customer Driven Demand Networks: Unlocking the Hidden Value in the
7
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)
8
58

Balancing Supply and Demand

External balancing methods
Change demand
Change lead time
Internal balancing methods
Production flexibility
Inventory

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

Step
Step
Step
Step
Step

1:
2:
3:
4:
5:

Run sales forecast reports

Demand planning phase
Supply planning phase
Pre-S&OP meeting
Executive S&OP meeting

17

Figure 7.2

Monthly S&OP Process

18
Source: Thomas F. Wallace, Sales and Operations Planning: The How-to Book (2000) 43

INTEGRATION OF SALES FORECASTING AND PRODUCTION

19

Collaborative Planning, Forecasting, &

Replenishment
Using internet technologies retailers,

distributors, and manufacturers collaborate on

operational planning.
Transportation providers have now been

included with the concept of collaborative

transportation management (CTM).

20

Figure 7.3

CPFR Model

Source: Larry Smith, West Marine: A CPFR Success Story, Supply Chain Management Review (March 2006) 31 21

Fulfillment Models
Channels of Distribution
A distribution channel can be thought of as the
physical structures and intermediaries through which
goods, services, information, and finances flow.
Direct to Customer (DTC) Fulfillment
Advantages:

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
center
conflict between a store order and an Internet order
22

Figure 7.5

Logistics and Marketing Channels

Source: Robert A. Novak Ph.D.

23

Figure 7.7

Direct to Consumer Fulfillment

Source: Robert A. Novak Ph.D.

24

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
25

Figure 7.8

Integrated Fulfillment

Source: Robert A. Novak Ph.D.

26

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.

27

Figure 7.9

Dedicated Fulfillment

Source: Robert A. Novak Ph.D.

28

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

29

Figure 7.10

Outsourced Fulfillment

Source: Robert A. Novak Ph.D.

30

Fulfillment Models, continued

Drop Shipped Fulfillment

Also 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 network
vendor has direct control of its inventories

Disadvantage:

possible reduction of inventory visibility

31

Figure 7.11

Drop-Shipped Fulfillment

Source: Robert A. Novak Ph.D.

32

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
33

Figure 7.12

Store Fulfillment

Source: Robert A. Novak Ph.D.

34

Fulfillment Models, continued

Flow-Through Fulfillment
Product 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
network

Disadvantage:

Storage space at the store for pickup items a problem

35

Figure 7.13

Flow-Through Fulfillment

Source: Robert A. Novak Ph.D.

36

SUMMARY OF SELECTED FORECASTING TECHNIQUES

37

SUMMARY OF SELECTED FORECASTING TECHNIQUES (COUTINUE..)

38

SUMMARY OF SELECTED FORECASTING TECHNIQUES (CONTINUED)

39

DETERMINE APPROPRIATE FORECASTING APPROACHES

Demand
Variability

Demand Volume
40

Summary
Outbound-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.

41

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.
42

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,
43
as well as coordination of overall channel-wide