Manufacturing Planning and Control

MPC 6th Edition Chapter 2

McGraw-Hill/Irwin

Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

Demand Management
The Demand Management (DM) process determines how a firm integrates information from customers (both internal and external) into the MPC system. Activities include demand determination, converting customer orders into delivery promises, and balancing 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 MPC

Demand management provides a link to
The marketplace Sister plants Communicating with customers Warehouses Other internal and external customers Identifying all sources of demand
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Demand management functions

Information gathering

Demand Management in the MPC System

Resource Planning Sales and operations planning Demand management

Marketplace (customers and other demand sources

Master production scheduling

FRONT END

MPC Boundary

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Planning and Control

Demand management coordinates demand quantities and timing with the planning and control activities of the company
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 in the marketplace

Plans specify how the firm will respond to these forecasts

Forecast versus Plan

The plan may look significantly different from the forecast because of other considerations (staffing, capacity, etc.) Managers cant be held responsible for forecast errors, but should be held responsible for failing to execute the plan
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Independent versus Dependent Demand

The source of demand determines its type

Independent Customer demand that is not directly influenced by the actions of the firm (e.g. customer orders) Dependent Demand 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 management is 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
Inventory Location Suppliers Raw materials
Dependent

Work-inprocess

Finished goods

Maketo-Stock MPC Environment Assembleto-Order Maketo-Order Engineerto-Order

Independent

Dependent

Independent

Decoupling Points
Dependent Independent

Dependent

Independent

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Key Demand Management Tasks by Environment

Tasks Make-to-Stock Assemble-toOrder
Configuration management

Make-to-Order/ Engineer-toOrder
Product specifications

Information

Provide forecasts

Planning

Project inventory levels

Assure customer service levels

Determine delivery dates

Meet delivery dates

Provide engineering capacity

Adjust capacity to customer needs
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Control

Demand Management Communication Activities

Connection Make-to-Stock Assemble-toOrder
Demand forecasts, product family mix Mix forecasts, actual demand Configuration issues, delivery date

Make-to-Order/ Engineer-toOrder
Demand forecasts, engineering detail Final configuration Design status, delivery date
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SOP

Demand forecasts

MPS Customer(s)

Actual demand Next inventory replenishment

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 It is important to capture actual data wherever possible

Overall market dataneeded for sales and operations planning

Detailed product mixused for master production scheduling and customer order promising
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Customer Relationship Management

Make-to-Stockcapturing customer demand can help determine demand and mix trends Assemble-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 outputs change

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 between suppliers 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

Create joint business plan Create sales forecast

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Identify exceptions to the sales forecast

Resolve/collaborate on exception items
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CPFR Steps
6 7

Create order forecast Identify exceptions to order forecast Resolve/collaborate on exception items Generate order

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Principles
Demand management systems and procedures must be in alignment with the market environment All 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 the customer 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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Quiz Chapter 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 _________________
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