scm 7 DEMAND MANAGEMENT

Traditional supply chains
the point of manufacture or assembly and end with the sale of the product to consumers or business buyers.
Manufacturers
determine what will be available for sale, where, when, and how many
Demand management
focused efforts to estimate and manage customers’ demand, with the intention of using this information to shape operating decisions !
effective demand management
helps unify channel members with the common goal of satisfying customers and solving customer problems.
Demand Management, Threats
Lack of coordination; Too much emphasis on demand forecasting; information is used for operational and tactical planning rather than for strategic purposes
Forecasting
(amount, when, where). (goal is to minimize the error between the actual and forecasted demand).
Independent Demand
Bike, primary product
Dependent Demand
Tires, direct influenced by demand for independent item
Sales & Operations Planning !!!
It is necessary for a firm to arrive at a forecast internally that all functional areas agree upon and can execute

is a closed-loop process that involves sales, operations, and finance to arrive at an internal consensus forecast

Collaborative Planning, Forecasting, and Replenishment
Allows partners to agree to a single forecast for an item where each partner translates this forecast into a single execution plan (traditionally – forecast/plan separately).

is a method to allow SC partners to collaboratively develop a forecast

Four major processes of CPFR !!!!
(1) strategy and planning; (2) demand and supply management; (3) execution; and (4) analysis (i.e., feedback for closing the loop).
Demand Imbalance
managing imbalances between supply and demand.

fluctuation sources and the bullwhip effect phenomenon.

Random Variation
Something that cant be predicted, hurricane; tsunami
Trend Variation
up or down progression, ipods, vcr players; fashion
Seasonal Patterns
depends on the seasons, Halloween, Starbucks coffee cups
Business Cycles
economic cycles, large flux; housing market, real estate
Misalignment: The Bullwhip Effect
Overreaction to backlogs, neglecting to order so to reduce inventory, lack of SC communication and coordination, delayed information and/or material flow, order batching
Demand Management: A Balance
if a demand is less than inventory levels a price reduction should increase demand
External Balancing Methods
Attempt to change the manner in which the customer orders – the goal to balance the supply-demand gap.
Price (Law of Demand
demand is less than current inventory levels (i.e., stored inventory), a price reduction should increase demand, and vice versa.
Lead Time (Available):
demand exceeds the current supply (i.e., shortages), increasing expected lead times should decrease demand, and vice versa.
Internal Balancing Methods
Utilizing an organization’s internal processes as a means to manage the supply-demand gap.
Production Flexibility
Changing production lines from a product to another (i.e., lean manufacturing) – react quickly to changing demand by altering the production schedules
Inventory Flexibility:
Companies produce products to a forecast that includes safety stock to smooth the effects of demand and lead time variability (common and expensive).
Managing forecasting
minimizing errors between actual and forecasted demand. The key to successful forecasting is to choose a technique that has the least amount of forecast error.
Distribution: Fulfillment Models
fulfillment process (i.e., act of fulfilling a customer order), includes order management, picking, packaging, and shipping (physical distribution).
Channel of Distribution!!
may also represent the physical structures and intermediaries through which supply chain flows travel (e.g., distributors, wholesalers, retailers, and the transportation carriers).
Logistics Channel
Means by which products flow physically from where they are available to where they are needed.

storage, handling, transfer, transportation, and communications functions that contribute to the efficient flow of goods.

Marketing Channel
Means by which necessary transactional elements are managed

A set of practices or activities necessary to transfer the ownership of goods, from the point of production to the consumption point

Integrated Fulfillment
Retailer operates one distribution network to service both their retail stores and their online orders (click-&-mortar).

Advantages
Low start-up costs.
Eliminate need to have duplicate inventory.
Workforce efficiency – consolidated operations.

Disadvantages
Order profile changes (i.e., case/pallet vs. units).
Products might not be available in consumer units.
Fast pick or broken case – operation added to DC.
Conflict between a store order and an Internet order.

Dedicated Fulfillment
Retailer operates two separate distribution networks to service their retail stores and online orders, respectively.

Advantages
Allows for greater selection of products online.
Specialized labor knowledge and processes.
No channel conflicts or order profile changes.

Disadvantages
Duplicate facilities (employees and equipment).
Duplicate inventories (no risk pooling).
Issues with online returned goods.

Outsourced Fulfillment
Retailers will maintain internal control of their retail store fulfillment and outsource their online fulfillment to a 3PL.

Advantages
Efficiencies from utilizing 3PLs (established practices).
Retailer has low start-up costs to “try out” online sales.
Possible transportation economies (e.g., Amazon).

Disadvantages
Retailer may lose some control over the service levels.
Time and effort spent on logistics are not reduced.
Cost reductions not realized (e.g., cost creep).

Drop-Ship Fulfillment
Manufacturer delivers its products directly to the retailer’s stores, bypassing the retailer’s distribution network (VMI).

Advantages
Reduction of inventory in the distribution network.
Vendor controls its inventories at the retail store.
Vendor is better at managing their own inventory.

Disadvantages
Possible reduction of the retailer’s inventory visibility.
Requires much coordination and information sharing.
Makes sense for a limited number of retail products.

Store Fulfillment
Order is placed via a home website, the order is then sent to the nearest retail store where the customers pick it 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.

Flow-Through Fulfillment
Online order is placed, the retailer’s DC sends the product to the nearest retail store where the customers pick it up.

Advantages
Eliminates the inventory conflict.
Avoids the cost of the “last mile” for online purchases.
Returns can be handled via the existing store network.

Disadvantages
Storage space at store for pickup items is a problem.
Longer lead time to the customer than store fulfillment.
Possible increased transportation costs from the DC.