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Characteristics of Demand - Coggle Diagram
Characteristics of Demand
Demand is what the marketing or the customer base is requesting.
Demand is not sales, but sales plus backorders and a few other things can be used to estimate demand.
Stockout is an example of the unpredictability of demand.
Key principle of forecasting is that it is done for demand, not sales or ship dates.
Demand can be estimated for one's own product only or estimate the overall market demand which is inclusive of all other competitive equivalents.
Independent versus Dependent Demand
Independent Demand
- The demand for any item that is unrelated to the demand for other items. Demand for finished goods, parts required for destructive testing, and service parts requirements are examples of independent demand.
Independent demand comes from a number of internal and external sources.
Forecasting
End customers- Finished goods and service parts.
Replenishment orders.
Internal use. R&D, Quality control, destructive testing, marketing use.
Interplant demand or intercompany transfers ( Eg- between subsidiaries.
Dependent Demand
- Demand that is not directly related to or derived from the bill-of-material structure for other items or end products. Such demands are therefore calculated and need not and should not be forecast.
Distribution requirements planning (DRP)
- The function of determining the need to replenish inventory at branch warehouses. Demand on the supplying sources is recognized as dependent, and standard MRP logic applies.
Interplant Demand
- One plant's need for a part or product that is produced by another plant or division within the same organization. Although it is not a customer order, it is usually handled by the master production scheduling system in a similar manner.
A given inventory item may have both independent and dependent demand at any given time.
For example, a part may simultaneously be the component of an assembly and sold as a service part.
Demand Patterns
- When demand data are visualized, they may tell a story. Several observations can be made about the patterns of demand for products and services:
Seasonality
- is a predictable repetitive pattern of demand measured within a year where demand grows and declines. These are calendar related patterns that can appear annually, quarterly, monthly, weekly, daily or hourly. It is repetitive and is usually isolated temporarily so as to not influence forcasting.
Trend
- is the general upward and downward movement of a variable over time. Trends can also be flat. Trends can be influenced in varying degrees by internal (promotions) and external (economic cycle) factors.
Cycle
- usually refers to wavelike patterns observed in the growth and recession trends of the economy over years. Unlike seasonality, economic cycles do not repeat over a predictable period of time, so this forecast is left to economist. Another cycle, is product life cycle.
Random Variation
- is any variation left over after seasonality and trends have been accounted for. This reflects that customer vary when, where and in what quantities they buy products; the level of variation can differ greatly. If random variation is small, forecast can be fairly accurate.
