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

Manufacturing Planning and Control

MPC 6th EditionChapter 2

2-2

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.

2-3

Agenda

2-4

Demand Management in MPC

2-5

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 B

ound

ary

2-6

Planning and Control

Demand management coordinates demand quantities and timing with the planning and control activities of the companyPlanning occurs mainly in the SOP

moduleControl determines how capacity will

be converted into products

2-7

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

2-8

2-9

Independent versus Dependent Demand The source of demand determines its

typeIndependent – 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)

2-10

Demand Management and MPC Environment DM must conform to the strategy of the

firm, capabilities of manufacturing, and needs of customersThese define the MPC environment

MPC environment is defined by customer order decoupling pointThe point where demand changes from

independent to dependentAlternatively, order penetration point

2-11

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

2-12

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 customer’s order in terms of components and options (configuration management)

2-13

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

2-14

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

2-15

MPC Environments

Suppliers Raw materials

Work-in-process

Finished goods

Make-to-Stock

Assemble-to-Order

Make-to-Order

Engineer-to-Order

Independent Dependent

Independent Dependent

Independent Dependent

Independent Dependent

Decoupling Points

MP

C E

nviro

nmen

t

Inventory Location

2-16

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

2-17

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

2-18

Customer Interactions

Demand management converts customer orders into detailed MPC actionsMake-to-Stock–resupply of inventoryAssemble-to-Order–conversion of

customer request to promise dateMake(Engineer)-to-Order–conversion of

customer request to product specifications and promise date

2-19

Information Use in DM

Make-to-Knowledge–replacing forecasts with knowledge of customer requirements

Information channels (EDI, information sharing, etc.) enhance knowledge of customers’ inventory, requirements, and plans

2-20

Data Capture and Monitoring Data is needed in two categories

Overall market data–needed for sales and operations planning

Detailed product mix–used for master production scheduling and customer order promising

It is important to capture actual data wherever possible

2-21

2-22

Customer Relationship Management Make-to-Stock–capturing 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

2-23

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.

2-24

Demand Management Elements

Organization–responsibility for DM activities can be distributed throughout the firm Flexibility requires rules to avoid conflicts and unintended

consequences Monitoring–data must be accurate, timely, and

appropriate Communication is critical when inputs or outputs change

Balancing supply and demand–intelligence on actual conditions provides the basis for changes to plans

2-25

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

2-26

CPFR Steps

2-27

CPFR Steps

2-28

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

2-29

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

2-30

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 _________________