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Demand Management (1. Demand management principles ((1) Planning hierarchy…

- - - - Aggregation
        
        Aggregate forecast: (product group forecast) an estimate of sales for a grouping of products or product families produced by a facility or firm.
        
        For strategic and business planning: total volume and sales
        
        For sales and operations planning: product family, volume, and sales
        
        For master production scheduling and control: finished products or components
      - Forecast horizons and intervals
        
        For strategic and business planning: three years or longer
        
        For S&OP: the order fulfillment lead time for the company’s product lines
        
        For master scheduling: derived from S&OP by dividing the months up through the planning time fence into weeks
      - Keep balance in supply and demand
        
        1. Develop a better understanding of forecast demand and know how to do it accurately
        
        2. Use lean manufacturing techniques earlier
  - - - project manufacturing process: a high number of parts, a very low production rate or level, very low volume, high variety.
      - Work centre manufacturing process: a medium to high number of parts, a low to medium production rate, low volume, high variety, MTO.
      - Batch manufacturing: a medium number of parts, medium to high volume, low to medium variety, a medium to high production rate, MTO, ATO.
      - Line manufacturing process: a narrow range of standard items with identical or highly similar design, low to medium number of parts, a high production rate, high volume, low variety
      - Continuous manufacturing process: a low number of parts, high volume, low to medium variety, a high rate of production, MTS.
    - - decoupling point: the locations in the product structure or distribution network where inventory is placed to create independence btw processes or entities.
  - - - Purpose of forecasting: minimize the business risk of getting the forecasts wrong at the strategic level and reconcile the functional plans of the various departments.
      - Process: use forecasting in setting the direction for the organization, planning expansions of products, considering new product line proposal, and evaluating potential mergers, acquisitions, and international ventures
      - Tools: causal model, statistical regression tools, correlation analysis, market research, expert opinion, management estimation techniques, etc
    - - Purpose of forecasting: identify planned sales and product family output and to reconcile functional plans.
      - Process: use aggregate forecasts based on forecasts for individual products in each product line and refined using current trend information and marketing data on customers’ future plans that could influence demand.
      - Tools: regression analysis, time series forecasts, pyramid forecasting, the Delphi method, focus groups, expert opinion, etc
    - - Purpose of forecasting: determine the number of finished products or components at the individual end-item level to make and when to make them.
      - Tools: time series analysis, etc
    - - Purpose of forecasting: for both product families and end items or stock keeping units at distributed inventory stocking locations.
- - - - Simple regression (linear regression)
        
        Steps:
        
        Visualize the given data (find a trend line)
        
        Define the strength of correlation ()
        
        Predict the next period’s results
      - Multiple regression
      - Econometric model
    - - Steps:
        1. Visualize and deseasonalize
        2. Generate the seasonal index
        1) calculate the month average for each month
        2) calculate the year average
        3) calculate the seasonal index
        3. Obtain deseasonalized data
        4. Moving average (or weighted moving average or exponential smoothing)
        Ps: new forecast = (last period’s demand) + [(1-)last period’s forecast]
        5. Reseasonalize
      - Decomposition (for time series with multiple components, like trend, season, cyclical, random)
        
        Steps:
        1. Plot the seasonal data and calculate the trend line
        2. Calculate the trend-adjusted seasonal factor
        3. Calculate the trend-adjusted seasonal forecast
    - - Sales and marketing forecasts at the individual product level
      - Product family forecasts based on a roll-up of product-level forecast
      - A business-level forecast at the corporate level
      - A management forecast that reconciles the roll-up and business-level forecasts
  - - - Distribution of forecast error
      - Demand filter
        
        Forecast error = |actual demand – forecast demand|
        
        Forecast error as a percentage (absolute percentage error [APE]) = |actual demand – forecast demand| / actual demand
        
        Forecast accuracy = 1- forecast error as a percentage
      - Mean absolute deviation (MAD) = |actual demand – forecast demand|/ n
      - Mean squared error (MSE) = (actual demand – forecast demand)2 / n
      - Mean absolute percent error (MAPE) = (|actual demand – forecast demand| / actual demand)/ n
      - Bias: a consistent deviation from the mean in one direction (high or lower).
      - Tracking signal: identify the validity of the forecasting model
        tracking signal = algebraic sum of forecast errors/ MAD
      - Standard deviation = MAD*1.25
      - Collaboration
        
        Collaborative planning, forecasting, and replenishment (CPFR): a collaboration process whereby supply chain trading partners can jointly plan key supply chain activities from production and delivery of raw materials to production and delivery of final products to end customers.
        
        General steps:
        1. Create a collaborative forecast
        2. In term of joint forecast, consider significant events such as promotions, inventory policy changes, store openings and closings, and product introductions.
        3. Each partner optimizes its internal activities to support the forecast.
        
        Detailed steps:
        Individual business strategic changes
        
        Develop a collaborative agreement
        
        Create a joint business plan
        Day-to-day activity
        
        Create sales forecast
        
        Identify exceptions for the sales forecast
        
        Resolve/ collaborate on exception items
        
        Create an order forecast
        
        Identify exceptions for the order forecast
        
        Resolve/ collaborate on exception items
        
        Generate orders
        
        Advantages and challenges:
        Advantages:
        reduced supply chain costs;
        supply chain integration across organizational boundaries;
        forecast accuracy;
        improved customer service level;
        increased sales revenue.
        Challenges:
        must be perceived as win-win for both organizations;
        discontinuation of business practices that may be seen as successful;
        cost requirement to establish and maintain the relationship;
        organizational change required to support and enable the process;
        educate the team on the CPFR process.
- - - - Profitability (tool: 80/20 rule)
        Volume discounts
        Priority attention from sales and marketing staff and other functions
      - Strategic importance to the business
        Amount of leverage
        Ability to impose terms and conditions
      - Special needs
    - - Consuming the forecast: the process of reducing the forecast by customer orders or other types of actual demands as they are received.
      - Order entry: the process of accepting and translating what a customer wants into terms used by the manufacturer or distributor.
    - - Service levels by segment
      - Satisfaction ranking
        Tools: survey, customer loyalty, etc.
      - Supply chain metrics and the SCOR model
      - Lifetime customer value (LCV)
        Decrease the total cost of marketing
        Make it easier to know and satisfy their needs over time
        Supply opportunities for increased revenue and profit
      - Customer service level: a measure of delivery performance of finished goods or other cargo.
    - - Order fulfilment lead time: the average amount of time btw the customer’s order and the customer’s receipt of delivery.
        Customer order management: a set of actions that results in the production and/or shipping of goods to customers.
      - Available-to-promise (ATP): the uncommitted portion of a company’s inventory and planned production maintained in the master schedule to support customer-order promising.
        ATP = on-hand + supply – demand
      - Capable-to-promise (CTP): commit orders against available capacity as well as inventory.
      - Abnormal demand: demand in any period that is outside the limits established by management policy.
        Steps:
        
        Check ATP data to see if the order can be accommodated before making any commitment to the customer;
        
        Determine the impact of fulfilling this order on other customer’s orders;
        
        Make final decision.
      - Customer service policy
        - Primary components:
        customer focus, service levels, performance measurement, system support, customer interface, culture, top management, integration with strategic goals.
    - - Factors: probability, stock-out probability
      - Purpose: provide additional inventory to prevent customer dissatisfaction and loss of sales revenue caused by demand and supply certainty.
      - Approaches:
        o Stock or inventory buffer
        o Protective capacity buffer: a safeguard against unexpected or unpredicted events.
        o Time buffer
    - - Approaches
        
        SCOR model
        
        Cash-to-cash cycle time
        
        Upside supply chain flexibility
  - - - Reliability: the quality of product and service
        reliability = number of perfect orders/ total number of orders
      - Responsiveness: the average cycle time that a manufacture requires to respond to and deliver customer orders.
        responsiveness = sum of annual cycle times for all orders delivered / total number of orders delivered
      - Agility: evaluate the ability of a supply chain to deal reliably with demand variation in the near and long time.
      - Cost