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Transcript of DEMAND MANAGEMENT
Demand Management is described as: “the process that balances customer requirements with supply chain capabilities and those activities that range from determining or estimating the demand from customers through converting specific customer order into promised delivery dates to helping balance demand with supply”.
Ford Motor Company:
how did they survive without a bailout?
(based on judgments)
(based on mathematical computations)
> Time Series Methods
> Associative Forecasting Method
> Simulation Forecasting Method
Lesley Austin Xin Fan
Abdulrazzak Alkazemi Sihua Meng
Types of Demand Management
Point-of-Sale Data (POS)
Materials Requirement Planning (MRP)
Functions of Demand Management
- Field sales
- Supply Management
- Manufacturing and Service Operations
Why is Demand Management Important to Companies Today?
- Critical to all parts of an organization.
- If done properly it can result in better use of resources.
- It creates a more competitive organization.
Why companies use demand management?
- Allocate resources
- Keep track of inventory levels
- Hiring and firing of personnel
- Budgeting of cash flow
- Schedule work and people
Auto industry bailout figures:
to bailout General Motors and Chrysler
to bailout their lenders
- Ford borrowed
from the DOE to develop fuel efficient cars and technologies
- They previously restructured the entire company to prepare for the future and enhance their present operations, a plan known as “The Way Forward”
The Way Forward
- Long term plan to resize the company and maintain cash reserves
- Reduce fixed capital costs while maintaining a special focus on cars and crossover vehicles
- Hopes to make more of its product lines profitable instead of relying on a limited portion of the products for profit
The Way Forward: action taken
- Laid off
- Sold stakes in Jaguar, Land Rover, Aston Martin, Mazda, and closed Mercury
- Cash generated helped them significantly in preparation for the auto industry crisis
How Ford influenced demand and supply to benefit them
- They lobbied for their competitors GM and Chrysler to receive a bailout so that Ford’s suppliers don’t go out of business
- They lobbied for incentives to purchase fuel efficient vehicles
- Car Allowance Rebate System
- One Ford
Time Series Methods (continue)
Exponential Smoothing Method
- It is used when there is little evidence of seasonality or trends but more recent demand is an indicator of future demand.
- It involves little record keeping of past data
Trend-Adjusted Exponential Smoothing Method
- When a trend is present, exponential smoothing must be modified
Associative & Simulation Methods
- look at the relationships between factors that will influence demand
- Most common technique is linear regression analysis
- this method mimics consumer preferences that result in demand for specific products.
Time Series Methods
Simple moving average method
- It is a series of arithmetic means
- It is Used if little or no trend
Weighted moving average method
- Compare to simple moving average method, it may be at times to weight the more recent periods more heavily since what influenced these periods may be more likely to influence the upcoming forecast period than what influenced earlier periods.
Purpose of Forecasting
- Purpose of short-term forecasting:
Appropriate production scheduling.
Reducing costs of purchasing raw materials.
Avoiding over-stocking or costly delays in meeting orders.
Determining appropriate price policy.
Setting sales targets and establishing controls and incentives.
Evolving a suitable advertising and promotional campaign.
Forecasting short-term financial requirements.
- Purpose of medium-term and long-term forecasting:
Planning of a new unit or expansion of an existing unit.
Planning long term financial requirements.
What is forecasting:
Why is forecasting important?
Initial step for making any decision
Produce enough to meet the demand
-reduce uncertainty of demand,
-reduce operating costs,
-provide better service for customer
-unsold merchandise or out-of-stock
Sales Force Estimates
- Estimates from individual salespersons are reviewed for reasonableness, then aggregated
- Ask the customer
- Panel of experts, queried iteratively
Jury of Executive Opinion
- Pool opinions of high-level executives
Avoid This Forecast…
The One Ford Global Product Development System (GPDS)
- One product development system for all its product lines
- “If we’re trying to reinvent the process every single time, we’re losing valuable time that could be spent engineering new vehicles.” – Raj Nair
- Increase in quality
- Increased customer demand and improve forecasting through improved processes and communication
- “We all need to be on the same page so that it’s very clear what our processes and deliverables are and how we communicate our needs with one another” – Raj Nair
- “enable the company to deliver more vehicles faster, increase competitiveness and deliver profitable growth”
Nike Case- Failure in Demand Forecasting
Lessons Learned from Nike's i2 Debacle
“Firms estimate resource requirements by identifying and quantifying all sources of demand”. (Textbook)
“ An estimate of sales in dollars or physical units for a specified future period under a proposed marketing plan.” (American Marketing Association)
Joel D. Wisner & Linda L. Stanley.(2008). Demand Management and Forecasting. Process Management: Creating Value along the Supply Chain. Mason, OH: Thomson South-Western. pp 136 – 169.
American Marketing Association. (2013) MarketingPower, Inc. http://www.marketingpower.com/
Christopher Koch. (2004, June 15). “Nike Rebounds: How (and Why) Nike Recovered from Its Supply Chain Disaster,” CIO Magazine. http://www.cio.com/article/32334/Nike_Rebounds_How_and_Why_Nike_Recovered_from_Its_Supply_Chain_Disaster
Chris Koch. (2004, June 15). “Five Lessons Learned from Nike’s i2 Debacle,” CIO Magazine, http://www.cio.com/article/32335/Five_Lessons_Learned_from_Nike_s_i2_Debacle
Thank you for your attention!
Demand forecasting is the scientific and analytical estimation of demand for a product/service for a particular period of time.
It is the process of determining
products is needed
Figure from "Process Management: Creating Value along the Supply Chain". P 140
Image by Iam Wahid (September 30, 2013)
Define a business goal.
Software alone can't predict the future
In early 2001, Nike had way too many Air Garnett sneakers and far too few Air Jordans.
i2 - a software glitch that cost Nike more than $100 million in lost sales, depressed its stock price by 20 percent.
Reasons for i2's Software Failure
Inexperience with i2.
Problems in smooth integration.
Lack of human checks & review.
i2 Trade Matrix Plan Solution