Seasonality creates inventory when capacity is than what is needed to handle peak demand.
Abstract Capacity limitations for manufacturers of seasonally demanded goods create difficult problems for both practitioners and researchers. Empirical data suggest that practitioner response is far from optimal. Optimal solutions, however, are precluded for realistic problems due to computational complexity. Here, the structure of optimal policies is explored and heuristics based on myopic policies are developed. For simple problems, the best heuristic deviates from optimality by an average of 2.5% over a variety of conditions. Heuristics are also compared under more realistic business conditions by simulation. Show
Journal Information The Editorial Policy of the Journal of the Operational Research Society is: The Journal is a peer-refereed journal published 12 times a year on behalf of the Operational Research Society. It is the aim of the Journal to publish papers, including those from non-members of the Society, which are relevant to practitioners, researchers, teachers, students and consumers of operational research, and which cover the theory, practice, history or methodology of operational research. However, since operational research is primarily an applied science, it is a major objective of the Journal to attract and publish accounts of good, practical case studies. Consequently, papers illustrating applications of OR to real problems are especially welcome. Publisher Information Palgrave Macmillan is a global academic publisher, serving learning and scholarship in higher education and the professional world. We publish textbooks, journals, monographs, professional and reference works in print and online. Our programme focuses on the Humanities, the Social Sciences and Business. As part of the Macmillan Group, we represent an unbroken tradition of 150 years of independent academic publishing, continually reinventing itself for the future. Our goal is to be publisher of choice for all our stakeholders – for authors, customers, business partners, the academic communities we serve and the staff who work for us. We aim to do this by reaching the maximum readership with works of the highest quality. Rights & Usage This item is part of a JSTOR Collection. To read the full version of this content please select one of the options below:
Geoff Buxey (Deakin University, Geelong, Victoria, Australia) When sales vary significantly according to season, the manufacturer makes special provisions to integrate the acquisition of raw materials and labour with an effective production schedule which satisfies customers′ requirements. The recommended procedure is called aggregate planning, and many algorithms produce a good definitive solution. However, they have been ignored by industry. The empirical research
presented here looks at such planning in a sample of 20 Australian factories. It sheds some light on the acknowledged gap between theory and practice, and suggests that business strategy, the extent of the seasonal distortion, and the tactical remedies available, are all linked. Strategic and tactical considerations tend to bypass the aggregate planning step, and the problem is ultimately resolved at the master production schedule level. Buxey, G. (1993), "Production Planning and Scheduling for Seasonal Demand",
International Journal of Operations & Production Management, Vol. 13 No. 7, pp. 4-21. https://doi.org/10.1108/01443579310038769 MCB UP Ltd Copyright © 1993, MCB UP Limited Related articlesCompanies that adapt their business models for today’s demand-driven supply chains have a global competitive advantage. Learn how data analytics supports the demand forecasting and planning accuracy needed to grow revenue and profits in volatile times. Inside this article:
What Is Demand Management?Demand management is a planning methodology. Companies use it to forecast and plan how to meet demand for services and products. Demand management improves connections between operations and marketing. The result is tighter coordination of strategy, capacity and customer needs. In 2014, the Global Journal of Management and Business published research that concluded that demand management “provides an important bridge between the marketplace and a company’s internal operations.” The study also clarified the concept of demand management as “the creation of interactions between operations and marketing with the goal of understanding the market and developing actions in sync with company strategy, production capacity and end-customer needs.” Those conclusions remain valid today. Modern demand management identifies and captures all potential demands, interprets them and communicates them to relevant departments within the organization. An example of external demand is an assessment based on customer inquiries or booked orders, while an internal demand assessment may calculate the raw materials needed to produce a new product and the promotional activities required to support the launch of that same product. What is demand management in logistics?Demand management informs the work of logistics in the supply chain. Logistics is the part of the supply chain process that plans and controls the flow of objects between origin and consumption. Role of demand management in the organizationDemand management covers multiple areas, including strengthening inventory levels and planning, trade and promotion planning and customer service. Demand management is a process that supports supply chain management (SCM). Supply chain management applies to managing all of an organization’s sourcing, developing, manufacturing and delivery activities, including moving materials, services and goods from suppliers. The supply chain is a complex, interconnected system that enables companies to build products and bring them to market. A company may be a critical link in other businesses’ supply chains. Key Takeaways:
What Is the Purpose of Demand Management?Demand management formulates an action plan to meet current and anticipated conditions in target markets. The process provides data and insights to marketing, demand planning. production and sales forecasting teams to help them achieve company goals. Objectives of Demand ManagementSuccessful demand management teams today are customer-centric — it’s all about the ability to predict and fulfill demand with the right products and services. Specific areas of focus include improved customer service, more accurate forecasting and lower costs. Specific objectives of customer-centric demand management include:
Goals of Demand ManagementThe end goals of demand management are to boost sales growth and deliver strong profit margins. Business leaders use the process as a central decision support tool, contributing to strategic initiatives and tactical execution. Demand Management vs. Demand PlanningDemand management, like demand planning, aims to keep supplies and demand in balance. The difference is that demand management looks at consumer demand in the short term, while demand planning covers more extended timeframes. Demand management is like demand planning in that both help companies avoid producing more goods than they can sell at the price they want to charge. Demand planning analyzes consumer trend, historical sales and seasonality data to enhance a company’s ability to meet customer demand in the most efficient way possible over the long term — up to 24 months for most businesses. Demand planning is crucial because it minimizes excess stock and the associated negative effect on cash flow while improving profits and flexibility as a business adapts to customer demand. Demand Management vs. Capacity ManagementDemand management identifies potential demand variations. Capacity management is a response to demand. Capacity management aims to ensure resources are available, so business activities and production can thrive under any circumstances. In general, demand fluctuates while near-term capacity remains constant. Demand management activities generate the information capacity management teams need to manage the company’s resources — including technology and equipment, manufacturing, labor and office and warehouse space — to best meet upcoming needs. Subpar capacity management may create contracted revenues because of customer attrition, unfulfilled orders and decreased market share — things every business wants to avoid. Demand Management Components and ProcessThe demand management process is intrinsic to supply chain management in that it balances supply with demand. The first three steps of modeling, forecasting and demand planning inform the fourth, supply planning. Components of demand managementEach demand management process features components to identify and focus on customer needs. Based on the data derived from each element, managers arrive at the best plan to improve overall business performance and optimize the supply chain from end-to-end. Demand management process: ModelingThis component requires the business’s demand planning team to acquire from other groups data linked to sales and demand drivers such as innovation, social media strategy and market trends. They can then enter these data sets into demand management and planning software or manually analyze them for various exercises including:
Demand management process: ForecastingDemand forecasting uses predictive analytics to forecast future demand for services or products. Demand forecasting supports reliable supply decisions based on estimated future sales and revenue. Areas of focus include:
Demand management process: Demand planningThe demand planning process forecasts product or service demand to ensure you can satisfy customers. Demand planning aims to strike a balance — sufficient inventory levels to meet orders without a surplus. Consider these best practices:
Demand management process: Supply planningSupply planning is the part of the demand management process handled by supply or inventory management. The goal is to identify and address the most critical problems, plan across multitier locations and simulate potential responses to optimize inventory and customer service costs. Then, you can write and execute a plan based on the best data available, with customer needs in mind, based on all inputs. One tip from experts is to stay flexible. A vital element of demand management is continuously finding ways to improve operational flexibility and reduce demand variability. When you have technology that supports planning you can react efficiently and quickly — then, disruptions don’t cause chaos, and it’s easy to pivot to a better position. A 2002 study in the International Journal of Logistics Management on the demand management process describes synergies with business functions and departments and each component in detail. The research also stresses the need for collaboration in forecasting so that management remains in control and company goals and objectives are achieved. Activities in Demand ManagementDemand management activities help teams dive deeper and develop plans to support a more efficient supply chain. Activities include demand capacity, chain, communication, modeling, shaping, sensing and prioritizing.
Activities in demand management require leaders and their departments to take a holistic view, work together and make informed decisions based on data. Who Uses Demand Management?Virtually all departments and divisions within companies use demand management directly or indirectly. Demand management determines upcoming needs, so every area of the business can work efficiently, without overtaxing systems. Demand management users include marketing and sales, finance, research and development, production, quality control and logistics. The demand management data that flows from those departments impacts order fulfillment, customer service, customer relationship management, manufacturing flow management, procurement and product development and commercialization. How Do You Manage Demand Management?The demand management process functions best as a team effort, with the goal of better understanding supply issues. In larger firms, a demand manager oversees the process. Participants should include new product development, sales and marketing and production schedulers. The most effective way to handle demand management is to deploy integrated, analytics-driven processes. Successful companies leverage predictive analytics, market intelligence and best-in-class technologies to achieve revenue growth goals and objectives. Demand management extends beyond forecasting and incorporates the demand sensing and demand shaping techniques discussed earlier in this article. Demand managers can continuously shape demand based on analysis of key performance indicators (KPIs) and metrics. Data sharing enables high supply chain visibility (SCV), another crucial demand management approach. Supply chain visibility alerts schedulers and planners when order fulfillment issues or low inventory levels threaten the ability to demand. 6 Demand Management Examples in Various IndustriesEquilibrium in supply and demand is essential in every business. Demand management examples occur in both product and service companies. Industries that use demand management range from cosmetics to public utilities to theme parks. Here are six example demand management use cases:
Demand Management StrategySuperior demand management requires high-quality data that teams then analyze continuously — often daily, depending on the environment and type of business. The process includes updating forecasts based on that data to inform strategies. In 2015, the Transportation Journal synthesized more than 100 demand management studies and found that “consensus in competitive orientation, operational strategies and the environment led to superior performance.” Today’s demand management strategies still focus on cost reduction, revenue enhancement and streamlined operations. Example of a demand management strategyThe pandemic underscored the effects of global events on product demand and supply chains. Even though COVID-19 was not something most companies planned for, those that already used demand management strategies to handle disruptions, particularly in retail, fared better than those with no strategy in place. The Foley and Lardner LLP 2020 Global Supply Chain Disruption and Future Strategies Report, a survey of 150 C-suite manufacturing executives in various industries, found that companies have learned the lesson that disruptions are a present and future threat, and strategies are needed to fend them off. Demand management strategies that have gained prominence post-pandemic include:
Demand Management Best PracticesDemand management success begins with promoting a demand management culture. Other best practices include the use of reasonable time frames, good forecasting and respect for process owners. Demand management best practices include:
Advantages of Demand ManagementA series of interconnected improvements result from consistently practicing demand management principles. Advantages include improved forecasting, a more confident sales force and better labor management. Additional demand management advantages include:
Benefits of Demand ManagementDemand management delivers higher revenue, more control over product availability and the ability to respond to change without undue disruption. Other benefits of demand management include:
Disadvantages of Demand ManagementMost demand management disadvantages arise when companies lack systems to easily handle the process and/or suffer from poor or insufficient data, risk-averse or rigid management and siloed teams. Businesses need to remove a number of barriers or risk derailing the effort. Barriers to demand management include:
Challenges of Demand ManagementChallenges in demand management often involve consumer pull. Consumers want more, faster — many expect instant responses and same-day delivery. Business leaders must adapt to cope with more frequent peaks and valleys in consumer demand. Other challenges of converting to next-generation demand management include:
Supply Chain Balance Demands Multiple Techniques for Success in Today’s Global MarketplaceThe maxim that "change is the only constant" would be more accurate if we added the word “accelerating” to the beginning. To win in today’s global marketplace, companies need to focus on a range of techniques to support customer-centric demand management. Unforeseen risks and volatility are likely in the future. The antidote is data. Knowledge gathering — and sharing — are the key to delivering value. Companies need to forge reciprocal relationships with suppliers and customers, and from sales and marketing to logistics, every department needs to work collaboratively. Finance teams must direct spending in support of optimized demand forecasting, and executives need to demonstrate buy-in from the top down. Most of all, in a time of accelerating change, demand management depends on reliable data. For accurate forecasting and planning, predictive analytics – AI, machine learning, data mining and predictive modeling — support, validate and justify sales and marketing strategies in a dynamic and interconnected world. NetSuite’s Demand Planning Models Reduce Inventory, Increase Turns and Reduce Lead TimesCompanies can predict demand in various ways: current numbers, historical demand, open opportunities, imported sales forecasts – the key is always good data. The powerful functionality, ease of use and multilocation inventory features in NetSuite Demand Planning mean solid plans are only a click away. Companies can perform demand management weekly or monthly to generate forecasts using moving average, linear regression or seasonal average calculations. And, you can review and edit all demand forecasts before proceeding with supply planning. NetSuite Demand and Supply Planning Capabilities
Companies looking to strike the delicate balance between supply and demand can use a combination of strategies and techniques. Advanced inventory management and demand planning are simplified with decision-making support from Supply Chain Planning Solutions’ real-time visibility. Which type of inventory is used to satisfy seasonal demand that exceeds capacity?Cycle inventory is inventory carried to satisfy demand that exceeds the amount forecasted for a given period.
Which factor favors promotion during peak demand periods?LOG EXAMII. Which approach to capacity management would schedule the workforce so that the available capacity better matches demand?A firm that uses flexible work hours from the workforce to manage capacity to better meet demand is using a seasonal workforce. Scheduling the workforce so that the available capacity better matches demand is using time flexibility from the workforce.
Which approach to capacity management would require that the workforce be multi skilled?The use of a seasonal workforce requires that the workforce be multi-skilled and easily adapt to being moved from line to line.
|