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Manufacturing Planning and Control. MPC 6 th Edition Chapter 2. Demand Management. The Demand Management (DM) process determines how a firm integrates information from customers (both internal and external) into the MPC system.

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manufacturing planning and control

Manufacturing Planning and Control

MPC 6th Edition

Chapter 2

demand management
Demand Management

The Demand Management (DM) process determines how a firm integrates information from customers (both internal and external) into the MPC system.

Activities include demand determination, converting customer orders into delivery promises, and balancing supply with demand.

demand management in the mpc system
Demand Management in the MPC System

Marketplace (customers and other demand sources

Sales and operations planning

Resource Planning

Demand management

MPC Boundary

Master production scheduling


planning and control
Planning and Control
  • Demand management coordinates demand quantities and timing with the planning and control activities of the company
    • Planning occurs mainly in the SOP module
    • Control determines how capacity will be converted into products
  • The company executes the plan as actual demand information becomes available
  • The control function determines how the plans will be modified to accommodate forecast errors and other changes in assumptions
  • Most control functions are located in the MPS module
independent versus dependent demand
Independent versus Dependent Demand
  • The source of demand determines its type
    • Independent – Customer demand that is not directly influenced by the actions of the firm (e.g. customer orders)
    • Dependent – Demand that is driven by the plans and activities of the firm (e.g. components, warehouse demand)
demand management and mpc environment
Demand Management and MPC Environment
  • DM must conform to the strategy of the firm, capabilities of manufacturing, and needs of customers
    • These define the MPC environment
  • MPC environment is defined by customer order decoupling point
    • The point where demand changes from independent to dependent
    • Alternatively, order penetration point
make to stock
  • Customer demand is filled from finished goods inventory (cosmetics, grocery items)
  • Key focus of demand management is maintenance of finished goods inventories
  • Physical distribution is a key concern
assemble to order
  • Customer requirements are met by a combination of standard options (personal computers, fast food)
  • Primary task of demand management is to define the customer’s order in terms of components and options (configuration management)
make to order
  • Items built to customer specifications, starting with raw materials (airplanes)
  • Primary task of demand management is gathering information about customer needs and coordinating with manufacturing
engineer to order
  • Firm works with the customer to design the product, then produces the product, starting with raw materials (ships, bridges)
  • Primary task of demand management is gathering information about customer needs and coordinating with engineering and manufacturing
mpc environments

Raw materials


Finished goods














MPC Environments

Inventory Location

Decoupling Points

MPC Environment

customer interactions
Customer Interactions
  • Demand management converts customer orders into detailed MPC actions
    • Make-to-Stock–resupply of inventory
    • Assemble-to-Order–conversion of customer request to promise date
    • Make(Engineer)-to-Order–conversion of customer request to product specifications and promise date
information use in dm
Information Use in DM
  • Make-to-Knowledge–replacing forecasts with knowledge of customer requirements
  • Information channels (EDI, information sharing, etc.) enhance knowledge of customers’ inventory, requirements, and plans
data capture and monitoring
Data Capture and Monitoring
  • Data is needed in two categories
    • Overall market data–needed for sales and operations planning
    • Detailed product mix–used for master production scheduling and customer order promising
  • It is important to capture actual data wherever possible
customer relationship management
Customer Relationship Management
  • Make-to-Stock–capturing customer demand can help determine demand and mix trends
  • Assemble-to-Order/Make-to-Order–customer information can provide information concerning design and mix preferences
outbound product flow
Outbound Product Flow
  • Physical distribution of products is planned using information from the demand management function
  • Short-term transportation schedules are developed using information such as customer delivery promise dates, inventory resupply shipments, interplant shipments, etc.
demand management elements
Demand Management Elements
  • Organization–responsibility for DM activities can be distributed throughout the firm
    • Flexibility requires rules to avoid conflicts and unintended consequences
  • Monitoring–data must be accurate, timely, and appropriate
    • Communication is critical when inputs or outputs change
  • Balancing supply and demand–intelligence on actual conditions provides the basis for changes to plans
collaborative planning forecasting and replenishment cpfr
Collaborative Planning, Forecasting, and Replenishment (CPFR)
  • Designed to improve competitiveness by facilitating communication between suppliers and retailers
  • Goal: reducing variance between supply and demand
  • Developed by the Voluntary Interindustry Commerce Standards Association
  • Demand management systems and procedures must be in alignment with the market environment
  • All product resource demands must be identified and accounted for when forecasting
  • Data capture must include not only sales, but also knowledge, trends, systems performance, and demand management performance
  • Implementing CPFR can lead to important organizational and business process improvements for both the customer and supplier
  • The CPFR process can improve customer service, sales, inventory, and margin performance for both the customers and supplier in a supply chain
quiz chapter 2
Quiz – Chapter 2
  • Demand Management (DM) includes which of the following activities?
      • Forecasting
      • Product shipping
      • Entering customer orders
  • The customer order decoupling point is best defined as ____________
  • In an Assemble-to-Order environment, the most likely point where customer order decoupling would take place is ______________
  • Sales and Operations Planning can be completed at which of the following levels
      • Product Family
      • Region
      • Organizational Unit
  • The main goal of a Collaborative Planning, Forecasting, and Replenishment (CPFR) process is to _________________