Manufacturing

Planning and Control

MPC 6th Edition

Chapter 2

McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Demand Management

The Demand Management (DM)

process determines how a firm
integrates information from
customers (both internal and
external) into the MPC system.
Activities include demand
determination, converting customer
orders into delivery promises, and
balancing supply with demand.

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Agenda

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Demand Management in MPC

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 Demand Management in the
MPC System
Marketplace

MPC Boundary
Resource Sales and Demand (customers
Planning operations management and other
planning demand
sources

Master
production
scheduling

FRONT END

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Planning and Control

Demand management coordinates

demand quantities and timing with the
planning and control activities of the
company
Planning occurs mainly in the SOP
module
Control determines how capacity will
be converted into products

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Execution

The company executes the plan as

actual demand information becomes
available
The control function determines how the
plans will be modified to accommodate
forecast errors and other changes in
assumptions
Most control functions are located in the
MPS module

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2-8
Independent versus
Dependent Demand
The source of demand determines its
type
Independent Customer demand that
is not directly influenced by the actions
of the firm (e.g. customer orders)
Dependent Demand that is driven by
the plans and activities of the firm (e.g.
components, warehouse demand)

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Demand Management and
MPC Environment
DM must conform to the strategy of the
firm, capabilities of manufacturing, and
needs of customers
These define the MPC environment
MPC environment is defined by
customer order decoupling point
The point where demand changes from
independent to dependent
Alternatively, order penetration point

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Make-to-Stock

Customer demand is filled from

finished goods inventory (cosmetics,
grocery items)
Key focus of demand management is
maintenance of finished goods
inventories
Physical distribution is a key concern

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Assemble-to-Order

Customer requirements are met by a

combination of standard options
(personal computers, fast food)
Primary task of demand management
is to define the customers order in
terms of components and options
(configuration management)

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Make-to-Order

Items built to customer specifications,

starting with raw materials (airplanes)
Primary task of demand management
is gathering information about
customer needs and coordinating with
manufacturing

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Engineer-to-Order

Firm works with the customer to

design the product, then produces the
product, starting with raw materials
(ships, bridges)
Primary task of demand management
is gathering information about
customer needs and coordinating with
engineering and manufacturing

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 MPC Environments
Inventory Location

Supplier Raw Work-in- Finished

s material process goods
s
Dependent
Make- Independent

to-
Stock
MPC Environment

Assembl Dependent
Independent

e-to-
Order Decoupling
Points
Make- Dependent
Independent
to-
Order
Enginee Dependent Independent

r-to-
Order
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 Key Demand Management
Tasks by Environment
Tasks Make-to-Stock Assemble-to- Make-to-Order/
Order Engineer-to-
Order

Information Provide Configuration Product

forecasts management specifications

Planning Project Determine Provide

inventory levels delivery dates engineering
capacity

Control Assure Meet delivery Adjust capacity

customer dates to customer
service levels needs

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 Demand Management
Communication Activities
Connection Make-to-Stock Assemble-to- Make-to-Order/
Order Engineer-to-
Order

SOP Demand Demand Demand

forecasts forecasts, forecasts,
product family engineering
mix detail
MPS Actual demand Mix forecasts, Final
actual demand configuration

Customer(s) Next inventory Configuration Design status,

replenishment issues, delivery delivery date
date
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Customer Interactions

Demand management converts

customer orders into detailed MPC
actions
Make-to-Stockresupply of inventory
Assemble-to-Orderconversion of
customer request to promise date
Make(Engineer)-to-Orderconversion of
customer request to product
specifications and promise date

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Information Use in DM

Make-to-Knowledgereplacing
forecasts with knowledge of customer
requirements
Information channels (EDI,
information sharing, etc.) enhance
knowledge of customers inventory,
requirements, and plans

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Data Capture and
Monitoring
Data is needed in two categories
Overall market dataneeded for sales
and operations planning
Detailed product mixused for master
production scheduling and customer
order promising
It is important to capture actual data
wherever possible

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Customer Relationship
Management
Make-to-Stockcapturing customer
demand can help determine demand
and mix trends
Assemble-to-Order/Make-to-Order
customer information can provide
information concerning design and
mix preferences

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Outbound Product Flow

Physical distribution of products is

planned using information from the
demand management function
Short-term transportation schedules
are developed using information such
as customer delivery promise dates,
inventory resupply shipments,
interplant shipments, etc.

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 Demand Management
Elements
Organizationresponsibility for DM activities can be
distributed throughout the firm
Flexibility
requires rules to avoid conflicts and unintended
consequences
Monitoringdata must be accurate, timely, and
appropriate
Communication is critical when inputs or outputs change
Balancing supply and demandintelligence on actual
conditions provides the basis for changes to plans

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Collaborative Planning,
Forecasting, and
Replenishment (CPFR)
Designed to improve competitiveness
by facilitating communication between
suppliers and retailers
Goal: reducing variance between
supply and demand
Developed by the Voluntary
Interindustry Commerce Standards
Association
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CPFR Steps

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CPFR Steps

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Principles
Demand management systems and
procedures must be in alignment with the
market environment
All product resource demands must be

identified and accounted for when forecasting

Data capture must include not only sales, but

also knowledge, trends, systems

performance, and demand management
performance

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Principles

Implementing CPFR can lead to

important organizational and business
process improvements for both the
customer and supplier
The CPFR process can improve

customer service, sales, inventory, and

margin performance for both the
customers and supplier in a supply
chain

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 Quiz Chapter 2
Demand Management (DM) includes which of the following activities?
Forecasting
Product shipping
Entering customer orders
The customer order decoupling point is best defined as ____________
In an Assemble-to-Order environment, the most likely point where
customer order decoupling would take place is ______________
Sales and Operations Planning can be completed at which of the following
levels
Product Family
Region
Organizational Unit
The main goal of a Collaborative Planning, Forecasting, and
Replenishment (CPFR) process is to _________________

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