D emand management can be defined as ‘the way of profitably meeting customer demand while ensuring service and quality’. It is made up of four components and must be conducted at three levels (Fig 1). At a strategic level, organisations

must manage total demand whilst they acquire new infrastructure, technology or skills. At the tactical level the

to provide reliable delivery performa constraints.

The four components creation, CO

planning and order management are with operational demand managemen be applied equally well at the strategic an

34 IEE Manufacturing Engineer I June/July 2004

IT and demand chain management *

t

DEMAND MANAGEMENT PREREQUISITES The prerequisite of effective demand management is an in- depth understanding of three critical parameters: the supply chain cost and customer/product profitability; the customer value proposition; and the horizon over which demand must be managed. This is dictated by the rate at which a company can change its capabilities (its ‘competitive space’) or put more simply the time taken to

,

increase the capacity of supplying process or resources. Once these parameters have been ascertained a demand management processes that supports the business can be designed.

Work at cranfield University seeks to help manufacturing based companies answer four basic questions: what capabilities will we need h m our supply base; how will our ‘product portfolio’ compete and how will this impact the

IEE Manufacturing Engineer I June/July 2004 35

Some activities are owned and operated by and hence fall within its competitive space,.e.g.

part of the organisation’s offer to, and PO

are performed by others in the environment, e.g. stock management. In order to remain

competitive, businesses need constantly to be reviewing

in the business environment will influence the optimum competitive space and impact each

estimates showed that the 6-8 % of turnover. Unconv presented we convinced

j customer value proposition exercise 9

handling equipment. The met identifying and quantifying would be able to make as a changes, i.e. putting a poun expressed needs.

36 IEE Manufacturing Engineer I June/July 2004

until these decisions are made and implemented we need to manage demand at the strategic level.

D MANACEME

gruence between the needs , customers and supplier supply chain design. Supply chain cannot be demand Positive benefit

and management. Here considerations such as

t consumption horizon are critical. ibution point within the supply

‘drop-off ’, abnormal demand rs

instant response iability Next

understand

chain can add complexity. In the information domain forecasts generated at a country or regional levels may be ‘netted‘ against stock and order policies applied, such that

their customer the demand communic the source of supply may customer valu original forecast. This monetary terms the Forrester Effect) is

rmance and should be level of service must also be understood. Using simple parameters such as tonnes produced or value shipped is hased consolidated not sufficient. Supply chain cost drivers are much more complicated and depend on combining product and demand characteristics with supply chain parameters such I( ,

as speed of response, number of order lines, drop &ensi@, etc, to get a clear picture.

Studies have shown that attribut and services based on their activity ( in the so-called ‘whale curve’. Fig 4 i but shows that approximately 50% of all products act&Uy reduce rather than add to profitability

We believe that

reduced wherever possible.

Order management is. the process of taking real

’ *

OPERATIONAL DEMAND MAN In ‘make to stock’ business environmen easy to keep promises. Stock is either ava Stock levels can be tuned to give the i.e. the percentage of the time we customer order from stock, or, percentage of time we are prep

In a non-stock, make to order, or assemble to order environment, keeping our promises is more Hicult and we have lost one of our main tools in providing services, Le. that

important, since we do not want to encumber the business

to be driven by certainty (known orders) as possible, but ut we must have a forecast to help us plan. it is important that this forecast is unbiased.

Actual orders are another source of demand. The way that actual orders consume demand is an important aspect

eed to identify abnormal an appropriate response. nt methods in order omise (ATP) calculation.

ational level. Approaches like competitive space, customer focused supply chains and supply chain costing allow better medium- and long-term decisions to be made thus enhancing a company’s ability to respond to changes in the business environment more quickly and proactively Nevertheless, within the lead-time to enact capacity or capability changes, demand must be managed if we are to provide reliable customer service and not grow the market for competitors. MI

Derek Thomason is currently head of LCP‘s Major Manufacturers Business Practice.

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