Lean Demand Management
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Lean Demand Management GE Supply Business Meeting Wednesday, January 24 th 7:00pm @ Fermier 303 Free Layne’s Chicken P rofessional A ssociation of I ndustrial D istribution Two Approaches What we want to do Predicting what we must do Supported by the sales force

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Lean Demand Management

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Lean Demand Management


GE Supply Business Meeting

Wednesday, January 24th

7:00pm @ Fermier 303

Free Layne’s Chicken

Professional Association of Industrial Distribution


Two Approaches

What we want to do

Predicting what we must do

Supported by the sales force

The right customer relationship

What the customer really needs

Convincing the customer to select the best option for all

Predicting what will happen

Understanding what must happen

Demand Management


  • Value Stream Mapping

  • Visually document processes and flows

  • Explain Processes description and metrics

  • Helps to redesign processes and identify waste

  • SIPOC Diagrams


  • Value Stream Mapping

  • Determine individual product or service

  • Draw Process Flows

  • Draw Material Flow

  • Draw Information Flow

  • Collect Process Data and Connect it to Processes

  • Add Lead Time Data


  • The Customers are Getting Demanding

  • Consignment

  • VMI

  • Integrated Supply

  • Outsourced Services

  • The key is to understand the value provided and how to deliver profitably.


Customer Stratification Model

Customer Life

OPPORTUNIST

CUSTOMERS

CORE

CUSTOMERS

  • High Profitability

  • No Relationship

  • Low Cost to Serve

  • Low Volume

  • High Profitability

  • Sustained Relationship

  • Low Cost to Serve

  • High Volume

Gross Margin

Cost to Serve

SERVICE DRAIN

CUSTOMERS

UNPROFITABLE

CUSTOMERS

  • Low Profitability

  • Sustained Relationship

  • High Cost to Serve

  • High Volume

  • Low Profitability

  • No Relationship

  • High Cost to Serve

  • Low Volume

Sales Volume


Customer Stratification Model

Customer Life

OPPORTUNIST

CUSTOMERS

CORE

CUSTOMERS

  • High Profitability

  • No Relationship

  • Low Cost to Serve

  • Low Volume

  • High Profitability

  • Sustained Relationship

  • Low Cost to Serve

  • High Volume

Gross Margin

Cost to Serve

SERVICE DRAIN

CUSTOMERS

UNPROFITABLE

CUSTOMERS

  • Low Profitability

  • Sustained Relationship

  • High Cost to Serve

  • High Volume

  • Low Profitability

  • No Relationship

  • High Cost to Serve

  • Low Volume

Sales Volume


Moving Service Drain Customers to Core

Moving Opportunist Customers to Core

Quickly Eliminating Unprofitable Customers

Developing the Relationship with Core Customers

Managing Customer Relationships


Inventory Holding Cost Components

Insurance

&

Taxes

Inventory

Holding

Cost

Cost

of

Capital

Storage

Cost

Obsolescence

Cost


Inventory Stock-Out Cost Components

Back Orders

Inventory

Stock-Out

Cost

Buy-Outs

Lost

Sales

Expediting


Savings Categories


Total Saving – Costumer Calculator

All Savings are expressed as a % of annual cost of purchasing from distributors

70

63.39

60

54.18

49.46

48.52

50

40

34.44

30.43

32.33

26.57

PERCENTAGE SAVINGS

21.85

30

23.83

20

10

13.47

11.25

2.77

4.18

1.44

3.94

6.13

5.84

4.68

2.95

0

1

2

3

4

5

6

7

8

9

10

CASES


Transportation

Inventory

Sales Effort

Managing Cost and Customers Simultaneously

How Do You Increase Service without Blowing Costs Sky High?


New Products – Insufficient historical data

Solution: Demand duplication technique

Substituting history of similar product

Forecasting – Data Integrity Issues

Item introduced in Oct ‘01


No or Negative Demand – Lost sales

Solution: Demand averaging & duplicating technique

Forecasting – Data Integrity Issues

Average of Jun’02 and Sep ‘02


Biased and Negative Forecasts

Due to use of just one year of demand history

Forecasting – Data Integrity Issues


Seasonality problem for repeated sales pattern

Solution: De-seasonalize the demand

Biased forecast for repeated sales pattern

Forecasting – Data Integrity Issues


Outlier reflected in forecast

Outlier smoothed after modification

Forecasting – Modifications to Math Model


Combination Forecasting & Error Metrics

Demand History

Math Model

System Forecasts

Amended Forecasts

Combination Forecasting

Error Metric

Actual Demand


Combination Forecasting – A Firm’s Implementation


Forecast Error Metrics – A Firm’s Implementation


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