Demand Management

Demand Management

Demand Forecasting
Demand Tracking

Demand Management

What does a firm want in its demand and production patterns? What drives demand

Try to influence the timing Or to reduce the uncertainty Dow

Why???

Demand Management for Service Firms

1. Maintain sufficient capacity to serve every customer immediately

Anyone see a problem with that?

2. Influence the demand pattern to make it match the firms capacity

Make wait time information available to customers Use appointment system

Demand Management for Service Firms

3. Price to stimulate demand during slack periods/ lessen demand during busy periods

variant: ripe-banana pricing strategy What is the problem in bid industry when firm turns down work? make people wait for service Text describes this as dangerous - has it ever happened to you? Examples?

4. Service-delay management

Waiting management program

Demand Management for Manufacturers

Promised delivery date (Make to Order, Assemble to Order) Inventory management (Make to Stock) Assign Order Priority Maintain Slack

Demand Forecasting Process

Melnyk & Denzler via Wight

1. Identify people and processes that need the forecast. 2. Identify the best data inputs 3. Select proper forecasting techniques 4. Apply the techniques. State your assumptions. 5. Monitor the performance of the forecasting process.

Types of Forecast

Demand Forecast Supply Forecast

Purchase of Supply Source Exchange Rate Fluctuation

Price Forecast

Planning Horizons
(1st Influencing Factor)

Long Range Demand-- 5 Years Out Intermediate Demand-- 1-2 Years Out Short Range Demand--Less Than 1 Year Buildup Breakdown Homogenous Corporate

Demand Forecasting

Influencing Factors
Makridakis and Wheelwright, 1989

Time Horizon (next slide) Level of Detail Number of Demand Segments Control vs. Planning Constancy Existing Business Processes

Qualitative Forecasting Methods

Grass-Roots Forecasting Focused Forecasting Historical Analogy Market Research Forecasting Tools Delphi Method

Delphi Example

Quantitative Forecasting

Historical time-series

Rough Cut / Trends Seasonal Adjustments correlation

Casual studies

Mathematical or simulation models

Demand Tracking Methods

Naive Forecasts Weighted / Moving Averages

What is a problem with weighted averages? Know how to calculate

Exponential Smoothing (emphasize recent data) Adaptive Forecasting (use recent forecast errors)

Forecast Error

The algebraic difference between the current actual sales and the projected sales that were extrapolated one sales period earlier MAD - Mean Average Deviation MSE - Mean Square Error

Need to understand Dont need to calculate

Forecast Error

Trumpet of DOOM

Kmart Demand

Next Time

Problem 16. (on p484)

a and e only

Goal

CATEGORY UNIT REVENUE DIRECT MATERIAL DIRECT LABOR VARIABLE OVERHEAD FIXED OVERHEAD

ALT 1 .50 .20 .10 .05 10,000.00

ALT 2 .50 .15 .05 .05 25,000.00

BREAKEVEN @ TC = TR; FIXED COST = SALES UNITS X (PRICE-(MATERIA+-LABOR+OVERHEAD))

2 wk

4 wk

12 wk

Problem 10.16

232 263 271 248 235 261 207 243 237 293 243 260 253 270 230 253 238 272 222 243 2289 238 262 234

247.5 267 259.5 241.5 248 234 225 240 265 268 251.5 256.5 261.5 250 241.5 245.5 255 247 232.5 266 263.5 250

23.5 19 24.5 19.5 41 9 12 53 22 8 1.5 13.5 31.5 3 3.5 26.5 33 4 56.5 28 1.5 16

253.5 254.25 253.75 237.75 236.5 237 245 254 258.25 262.25 256.5 253.25 251.5 247.75 248.25 246.25 243.75 256.5 248 258

249 251 251 248 248 249 249 251 251 255 250 252

MAD=20.45

MAD=17.52

MAD=16.96