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2. Demand Management

By Anonymous - Posted on 04 January 2012

Demand Management: The function of recognizing all demands for goods and services to support the market place. It involves prioritizing demand when supply is lacking. Proper demand management facilitates the planning and use of resources for profitable business results.
It occurs in the short, medium and long term. In the log term, demand projections are needed for strategic business planning of such things as facilities. In the medium term, the purpose is to project aggregate demand for production planning. In the short run, demand management is needed for items and is associated with master production scheduling.

Most of companies spend too few effort on establishing an proactive Demand Plan but rather simply aggregate the customer forecasts into monthly buckets - or worse keep the previous one - as an input for the Supply Plan. This increase the bullwhip effects and logistics people spend most of their time chasing orders and supplies, changing priorities and increasing significantly inventory with a negative impact on the On-Time-Delivery (OTD) performance.
The result in long fulfillment lead-time resulting in order delays or even loss of Sales. Companies spend many effort on production planning during M.P.S (Master Production Schedule) and in details in the M.R.P (Manufacturing Requirement Planning) with a poor result when the demand plan is not realistic. As the result operational performance is weak and management is put under pressure.

Logistics people value added is wasted in changing daily the production planning and checking the suppliers deliveries, as well as frequent meetings trying to follow unplanned orders. The inventory turn is then low, meaning that the return on dollar invested to fulfill orders are too low and company money is wasted on funding the demand plan discrepancy. And worst of all, unnecessary inventory built or unused raw material purchased become at the end obsolete and the financial impact is a direct write-off in the accounting book.

As a summary, inefficient demand planning results in order delays - so cash collection delay, losses of sales, high inventory and obsolescence which can lead to billion of dollar wasted.

4 Steps to Demand planning
This is done following 4 steps within a monthly in a continuous process:

1.Aggregate the customer forecasts, planned orders and backlog. Review the gaps, double entries and forecast in the past or in the frozen period (usually within the standard order lead-time).

2. Review and build a draft demand plan under the demand buckets:
Determine the market opportunities : trend, seasonality, new customer expectations, evolving competition, new products introduction,...in order to find the best demand areas
Determine the optimum product mix and customer mix to achieve a sustainable growth in the target demand areas
Determine the sales & marketing tactics to stimulate the demand in target demand areas : promotion, special events, price revision, distribution channel,...

3. Communicate the Demand Plan to the organisation:
Supply organisation : review demand plan in units to review capacity, efficiency and resources requirements
Finance organisation : review the assumption, product mix and turnover
Product organisation : review the product mix, new product introduction, product life cycles and demand plan in units

4. Review the scenarios during executive meeting:
Review the assumptions taken
Adjust the priorities
Adjust the demand plan according to the scenario amended

 Demand management activities
If material and capacity resources are to be planned effectively, all sources of demands must be identified. Demand management includes 4 major activities:

- Forecasting,
- Order processing,
- Making delivery promises,
- Interfacing between manufacturing planning and control and the marketplace.


Order processing occurs when a customer’s order is received. The product may be delivered from finished goods inventory or it may be made or assembled to order. If goods are sold from inventory, a sales order is produced authorizing the goods to be shipped from inventory.

 If the product is made or assembled to order, the sales department must write up a sales order specifying the product. A copy stating the erms and conditions of acceptance is sent to the customer. Another copy, sent to the aster planner, is authorization to go ahead and plan for manufacture. He must know wat to produce, how much, and when to deliver

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