Basics of demand management for idiots

DEMAND
MANAGEMENT
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For
Idiots

What is Demand ?
In simple economic terms, DEMAND is something which represents the customer’s desire and readiness to
spend for getting a particular service or product.
DEMAND SUPPLY
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Types of Demand
Individual Demand Market Demand
Perishable goods Demand Non-Perishable goods Demand
Organisational Demand Industrial Demand
Autonomous Demand Derived Demand
Long term Demand Short term Demand
Types of Demand in Economics
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Types of Demand in Supply Chain
PULL Demand
A demand is known as Pull demand when you receive it straight from your customers. If a customer likes a
product , he/she is directly going to go the outlet and ask for the product directly by taking it name.
Example – Customers interested to buy ‘X’ company’s spare parts ,directly contact them, specifying which
product they want to purchase.
PUSH Demand
A demand is known as Push demand when the product’s demand has been created by the efforts of the
manufacturers.
Example – Producers of ABC raw materials promote their newly launched spare parts for sale to the distributors.

What is Demand Management ?
Demand Management
Forecast
Plan
Manage
1
2
3
DEMAND for services and products

Why is Demand Management needed ?
 To come up with a manufacturing plan of action – balancing demand and supply.
 To get a real time image of the quantity of product that needs to the manufactured to meet the supply.
 Helpful in getting a sales plan accepted and synchronised by all associated units of supply chain.
Sales Plan Final Product
Raw Material A Raw Material B Raw Material C
Production
Unit
 To get an understanding of forecasting the future demand.

Components of Demand Management
Demand
Management
Marketing &
Sales Plan
Demand Forecasting
Resource
Distribution
New Product Launch
Constraints for
Product movement
inside factory
Service
expectation
of consumer
Inventory Level
Maintenance
Commitments
made to customer

Lack of Demand Management
Financial loss in terms of Business.
Underutilisation of company’s resources.
Dissatisfied customers and unstable suppliers.
High surge in cost of production.
Earning Opportunities lost in business.
9
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Customer is an integral part of Demand Management – Why ?
What product is
needed ?
What quantity is
needed ?
What is the
product needed ?

Sources of Demand
Internal Customers -
Employees
Promotional Team
Sales Team
Customers

Types
of
Demand Patterns
Horizontal01
Trend02
Seasonal03
Cyclical04
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Demand Patterns
Horizontal
Horizontal Pattern – The entire demand hovers around a constant mean figure throughout for a period.
1/5Quantity
Time
Example : daily use items such as Soap, basic food products.

Demand Patterns
Trend
Trend Pattern – The entire demand line shows a systematic increase/decrease over a period of time.
2/5Quantity
Time
Example : New mobile phones launched in the market.

Demand Patterns
Seasonal
Seasonal Pattern – The entire demand line shows an almost repetitive pattern in days and months or a
particular season.
3/5Quantity
Time
2015
2016
Example : products like umbrella, sunscreen lotion, winter care products.

Demand Patterns
Cyclical
Cyclical Pattern – The entire demand line shows increase or decrease in demand over a considerable
period of time say months or years.
4/5Quantity
Time
2000 2005 2010 2015
Example : Fashion products and designs

Demand Patterns
Random
Random Pattern – The entire demand line shows an almost un predictable demand data which does not
show any sequence or cycle.
5/5Quantity
Time
Example : high end cars for the elite and niche category people.

DEMAND

Independent Demand
Independent Demand Dependent Demand
 It is a demand which is important but can’t be
calculated.
 It is not related to demand for other things.
Example : Demand for bicycles in New York City
from June 2017 to September 2017.
 It is a demand which can be calculated from the
demand of the parent product.
 It is caused by an independent demand.
Example : Demand for number of tyres, cycle
frames, seats, helmets depend on the demand for
bicycles.
If demand is for 2,000 bicycles
Then
Cycle tyres= 2,000 X 2 = 4,000 units.
Seats = 2,000 X 1 = 2,000 units
Helmets = 2,000 X 1 = 2,000 units

What impacts the Demand
pattern’s stability ?
How long is the product available in
the market ?

Calculation of Correct Demand
Actual Demand Actual Sales
Cancelled Orders
21

22

What are Forecasts ?
Forecasts are predictions based on certain analysis of data that results in a calculative projections of the
expected results in the future.
What is common with all Forecasts ?
01
02
03
04
They often deviate from the actual result.
They always include a room for estimate of error in judgement.
They are more closer to the reality when predicted for immediate future.
Forecasts for group of products is more accurate than individual products.23

What is Demand Forecast ?
Demand forecasts are estimates of what the
consumers would want at a particular period of
time and a place.
The Demand forecasts are done by considering
the past trends, gathering data on consumer
behaviour and various other factors which
influence the decision of the consumer at a give
point of time.
The data can be collected both internally and
externally for the demand forecasting process by
an organisation.

Things to be considered while forecasting demand - 1
Inputs from
the market
Changes in the
PESTLE
Shift in
Market Demand

Things to be considered while forecasting demand - 2
Determination of
Market Size
Scope in the
market
Understanding the
reach of product
and the sales
team’s might

Fundamentals of Forecasting
Understand Basic Features of Forecasting
Figure OutWhat should be Forecasted?

Features of Forecasting
01
02
03
04
05
Forecasts have a tendency to go wrong.
Avoid forecasting what you can measure real time.
Focus on Group Forecasts.
Forecasts Durations – The closer ,the better.
Two extreme points should be set in Forecasts.

What should be Forecasted?
01
02
03
04
Stock of parts of a parent product.
Stock of parent products.
Distribution Channels.
Multiple parent products using same raw materials.

Types of Demand Forecasts
Short Term Forecasts
Medium Term Forecasts
Long Term Forecasts
Short Term Forecasts are made for a week to few weeks maximum. These are useful for
daily inventory planning, workforce and labour distribution, production planning.
Medium Term Forecasts are made for one month to seven eight months. These are useful
for sales and marketing planning, capital budget planning, manufacturing unit expansion,
training of work force etc.
Long Term Forecasts are made for one to five years in general. These are useful for
incorporating major changes in the business and the finances associated with it. They
have a high impact on the financial position and are done on trends and statistical
numbers.

Importance of Forecasts in Demand Management
Capital Acquisition from
Various sources.
Labour – full time and part
time requirements
projections.
Feasibility of new product
launch
Inventory level
Maintenance
31

DemandForecasts
Getting new
Machines
Inventory
Management
New Product
Launch
Workforce
Training
Getting new machines : Forecasts help in deciding whether
an investment in new machinery is required.
Inventory Management: Forecasts help in maintaining
inventory in warehouse specially with bigger lead times.
New Product Launch : helps in to decide whether a
particular new product should be launched at a particular period
of time.
Workforce Training : helps in to train full time and part time
workers based on the skill set requirements of the upcoming
projects.
Use of Forecasts in Demand Management
32

Forecasts Steps in Demand Management
Analyse the Data
Choose the forecasting methodology.
Project the forecast using the data.
Check for closeness with reality and
continuously fine tune the processes.
Level of PLC
Seasonality angle
Trends
Cycles
Which forecasts are needed ?
33

Forecast can go wrong
Wrong estimation of
Timings
Wrong estimation of
size or importance
Over estimation of
Sale of ice creams at
night after 10 PM in
winter night
Less estimation of
Sale of popcorn in a
multiplex that is
screening a hit movie.

Forecasting Errors
Forecasting Errors are the difference between the prediction and the actual happenings during a particular
period of time.
Example –
Forecast for pizza in LA from 10:00 Pm to 11:00 Pm was 120
units of Pizza.
Actual Demand was 170.
Forecast Error = 170 – 120 = 50 units of Pizza
Actual Demand
Forecast

What causes Forecast Errors ?
 Sudden shift in trends, tastes and preferences.
 Not decoding ‘what the customer wants’.
 Avoiding external factors which can have a big impact like weather etc.
 Delay in taking strategic decisions.
 Not understanding the past trends.
Forecast Errors
36

Need to consider the forecast errors while making demand forecasts
Why ?
Helps in making better decision.
Product A has a normal demand of 1000 units with very less starting stock say 100m units. The minimum
stock to be maintained is 500 units at a given time.
Assuming that there is a normal demand - An forecast should be minimum for 1600 units production in
advance to meet the demand.
At max 100 units extra would lie idle in this case every day which would be helpful to meet contingencies , if
any.
37

Estimates for groups in Forecasts are likely to be more correct – When ?
Consider
It is going to snow on 10th Jan. It is going to snow between 10th Jan to 15 Jan.
Which one of them is more likely
to happen ?

Estimates for Forecast is likely to be more correct in immediate future
For a local business, Production of a certain
number of umbrellas for the neighbourhood
depends upon the rain projection of the
weather department for the next three days.
Current sales : 100 umbrellas a day
Current weather forecast : 5 days continuous rain (99 %
chances due to low pressure in the ocean.
Estimate number of people needing umbrellas = 1
umbrella minimum per family *300 families.
There is every chance that the sales will go up
dramatically in the next three days..
Accura
te
Foreca
sts

Calculation of Forecast Error
Forecast Error = Actual Demand – Forecasted demand for that particular period.
For example, if Forecasted demand was 150 units but
actual demand was 170 units , it means that the
forecaster could not judge the true potential of the
saleability of the product.
E(t) = Y(t) – Y(t/t-1)
E(t) = Forecast Error
Y(t) = Current Observation
Y(t/t-1) = forecast of observation based on earlier
observations.

More to Come …. Very Soon…
41

Basics of demand management for idiots

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