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Copyri ght 2011 by The McGraw-H il l Companies, Inc. All ri ghts reserved.McGraw-Hill/Irwin
Manufacturing
Planning and Control
MPC 6thEdition
Chapter 2
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Demand Management
The Demand Management (DM)process determines how a firm
integrates information fromcustomers (both internal andexternal) into the MPC system.
Activities include demand
determination, converting customerorders into delivery promises, andbalancing supply with demand.
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Agenda
What is DM?
Benefits of DM
Role of DM
Shaping DM to match the manufacturing environment
Information and DM
Day-to-Day DM
Principles
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Demand Management in the
MPC System
Resource
Planning
Sales and
operations
planning
Demand
management
Master
production
scheduling
Marketplace
(customers
and other
demand
sources
FRONT END
MP
C
Boundary
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Planning and Control
Demand management coordinates
demand quantities and timing with the
planning and control activities of thecompany
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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Forecasts are estimates
of what might occur inthe marketplace
Plans specify how the
firm will respond tothese forecasts
The plan may looksignificantly differentfrom the forecastbecause of other
considerations (staffing,capacity, etc.)
Managers cant be heldresponsible for forecast
errors, but should beheld responsible forfailing to execute the
plan
Forecastversus Plan
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Independent versus
Dependent Demand
The source of demand determines its
type
IndependentCustomer demand thatis not directly influenced by the actions
of the firm (e.g. customer orders)
DependentDemand 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 managementis 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
SuppliersRaw
materials
Work-in-
process
Finished
goods
Make-
to-Stock
Assemble-
to-Order
Make-
to-Order
Engineer-
to-Order
IndependentDependent
IndependentDependent
IndependentDependent
IndependentDependent
Decoupling
Points
MPC
En
vironment
Inventory Location
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Key Demand Management
Tasks by Environment
Tasks Make-to-Stock Assemble-to-
Order
Make-to-Order/
Engineer-to-
Order
Information Provide
forecasts
Configuration
management
Product
specifications
Planning Project
inventory levels
Determine
delivery dates
Provide
engineering
capacity
Control Assure
customer
service levels
Meet delivery
dates
Adjust capacity
to customer
needs
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Demand Management
Communication Activities
Connection Make-to-Stock Assemble-to-
Order
Make-to-Order/
Engineer-to-
Order
SOP Demand
forecasts
Demand
forecasts,
product family
mix
Demand
forecasts,
engineering
detail
MPS Actual demand Mix forecasts,
actual demand
Final
configuration
Customer(s) Next inventory
replenishment
Configuration
issues, delivery
date
Design status,
delivery 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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Data Capture and
Monitoring
Data is needed in two categories
Overall marketdataneeded for
sales andoperationsplanning
Detailed productmixused formaster production
scheduling andcustomer order
promising
It is importantto captureactual datawhereverpossible
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Customer Relationship
Management
Make-to-Stockcapturing customer
demand can help determine demand
and mix trendsAssemble-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 outputschange
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 betweensuppliers and retailers
Goal: reducing variance between
supply and demand
Developed by the Voluntary
Interindustry Commerce Standards
Association
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CPFR Steps
1 Establish collaborative relationshipmay
require process redesign
2 Create joint business plan
3 Create sales forecast
4 Identify exceptions to the sales forecast
5 Resolve/collaborate on exception items
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CPFR Steps
6 Create order forecast
7 Identify exceptions to order forecast
8
Resolve/collaborate on exceptionitems
9 Generate order
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Principles
Demand management systems and
procedures must be in alignment with
the market environmentAll 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 thecustomer 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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QuizChapter 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 _________________