Chapter 7 Demand Management Learning Objectives

After reading this chapter, you should be able to do the following:

Understand the critical importance of outbound-to-customer logistics systems.

Appreciate the growing need for effective demand management as part of an organization’s overall logistics and supply chain expertise.

Learning Objectives (cont.) Know the types of forecasts that might be needed, and

understand how collaboration among trading partners will help the overall forecasting and demand management processes.

Understand the basic principles underlying the sales and operations planning process.

Identify the key steps in the order fulfillment process and appreciate the various channel structures that might be used in the fulfillment process.

Many organizations place significant emphasis on outbound-to-customer logistics systems

Chapter focus:

demand management

forecasting

Sales and Operations Planning (S&OP) process

collaborative forecasting approaches

fulfillment process and the processes and methods

Demand Management

The ability of firms throughout the supply chain to collaborate on activities related to the flow of product, services, information, and capital.

Problems in achieving goal: Lack of coordination between departments

Too much emphasis on forecasts of demand, with less attention on the collaborative efforts and the strategic and operational plans

Demand information is used more for tactical and operational than for strategic purposes

Direct-to-Customer (DTC) Fulfillment

Advantages: low start-up costs workforce efficiency because of consolidated operations

Disadvantages: the order profile will change (store orders in case and/or pallet

quantities, consumer orders, “eaches” in smaller order quantities) products might not be available in consumer units (eaches) “fast pick,” or broken case, operation to be added to the distribution

center conflict between a store order and an Internet order

Integrated Fulfillment Retailer maintains both a “bricks-and-mortar” and “clicks-and-

mortar” presence operates one distribution network to service both channels Advantage

low start-up costs existing network can service both

Disadvantages order profile will change with addition of Internet orders case lots versus “eaches” would require a “fast pick,” or broken case operation conflict might arise between a store order and an Internet order

Dedicated Fulfillment Both a store and an Internet presence with two separate

distribution networks Advantage:

separate distribution network for store delivery and consumer delivery eliminates most of the disadvantages of integrated fulfillment

Disadvantage: duplicate facilities and duplicate inventories

Outsourced Fulfillment assumes that another firm will perform the fulfillment

Advantages: low start-up costs for the retailer to service the Internet channel

possible transportation economies

Disadvantage: loss of control over service levels

Drop-Shipped Fulfillment also called direct store delivery, vendor delivers

directly to retailer, bypassing retailer’s distribution network.

works best for products that have a short shelf life Advantages:

reduction of inventory in the distribution network vendor has direct control of its inventories

Disadvantage: possible reduction of inventory visibility

Store FulfillmentThe order is placed through the Internet site and sent to the

nearest store for customer pick up Advantages:

short lead time to the customer low start-up costs for the retailer returns can be handled through the store product availability in consumer units

Disadvantages: reduced control and consistency over order fill conflict may arise between inventories must have real-time visibility to in-store inventories stores lack sufficient space to store product

Flow-Through Fulfillment

Product is picked and packed at distribution center, then sent to the store for pickup

Advantages: eliminates the inventory conflict avoids the cost of the “last mile” returns can be handled through the existing store network

Disadvantage: Storage space at the store for pickup items a problem

Summary

Outbound-to-customer logistics systems have received the most attention in many companies, but even in today’s customer service environment, outbound and inbound logistics systems must be coordinated.

Demand management may be thought of as “focused efforts to estimate and manage customers’ demand, with the intention of using this information to shape operating decisions.”

Although many forecasts are made throughout the supply chain, the forecast of primary demand from the end user or consumer will be the most important. It is essential that this demand information be shared with trading partners throughout the supply chain and be the basis for collaborative decision making.

Various approaches to forecasting are available, each serving different purposes.

Summary

Various approaches to forecasting are available, each serving different purposes.

The S&OP process has gained much attention in industry today. It serves the purpose of allowing a firm to operate from a single forecast.

The S&OP process is a continual loop involving participation from sales, operations, and finance to arrive at an internal consensus forecast.

CPFR is a method to allow trading partners in the supply chain to collaboratively develop and agree upon a forecast of sales. This allows for the elimination of inventories held because of uncertainty in the supply chain.

A number of distribution channel alternatives might be considered by organizations today. Effective management of the various choices requires coordination and integration of marketing, logistics, and finance within the firm, as well as coordination of overall channel-wide activities across the organizations in the channel.