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CHAPTER 12 DEMAND PLANNING: FORECASTING AND DEMAND MANAGEMENT I. DEMAND PLANNING: AN OVERVIEW o Company has to forecast the quantity (q) and timing of demands in order to make demand estimates o Demand planning – the combined process of forecasting and managing customer demands to create a planned pattern of demand that meets the firm’s operational and financial goals o Demand forecasting – decision process in which managers predict demand and make operational plans o Demand management – proactive approach where managers attempt to influence the pattern or consistency of demand use of pricing and promotional activities o helps operations managers know what customers they should serve at what levels of service o The Role that Demand Planning Plays in Operations Management Demand forecasting: environmental factors, historical demand, expert judgments Demand management: pricing, promotion, order scheduling Strategic operations planning and design (long term) Sales and operations planning (intermediate term) Materials and resources requirements planning (short term) o Planning Activities Book: Figure 12-1 demand forecasting and demand mgmt activities relating to one another and to other operational planning activities Forecasting activities integrate info gathered from the market, internal operations and large business environment to make predictions about future demand info includes past demand values, past forecasts and errors, business and economic metrics and judgments of experts Forecasts and demand mgmt plans are passed on to materials and capacity planning and scheduling systems systems used to manage resources and operating processes Below: Table 12-1 types of demand planning that support various levels of operational planning across the supply chain TIME HORIZON DEMAND PLANNING UNITS USES OF FORECASTS AND DEMAND MANAGEMEMT PLAN TYPES OF DECISIONS INVOLVED Strategic (long): 1-5 years Total dollar or unit sales for a business unit across the sales network - Supply chain network design - Capacity planning (investments or divestments) - Find new sources of supply - Build or sell a plant - Contract for transportation services - Open or close new service location
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Tactical (intermediate): 6-18 months Total dollar or unit sales for a product family in a region - Sales and operational planning - Product portfolio planning - Aggregate production plans - Employee hiring and firing - Planned overtime work - Subcontracting - New product launches Operational (short): 1-12 weeks Dollar or unit sales for a given item at a given location - Inventory planning - Purchasing plans - Labor scheduling - Daily production schedule - Daily work schedule - Purchase orders II. DEMAND FORECASTING a. Forecasters must ensure that users of forecast understand and accept underlying logic of the system b. Components of Demand i. Stable pattern – consistent stream of demands 1. Mature consumer products – shampoo, milk ii. Seasonality and cycles
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This note was uploaded on 05/25/2011 for the course SCM SCM 100 taught by Professor Jones during the Spring '11 term at Michigan State University.

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