Translating demands

1. Translating
Demand
into Orders
Operations Management
1
Phoebe Anne T. Arteche

2. TOPICS:
1. Designed-in Quality: Products, Service, and Process
Planning
2. Quality Control and Continuous Improvement
3. Demand Management And Forecasting
4. Master Planning – For Capacity And Output
5. Flow – Control System Overview
6. Purchasing: Quest For High-quality Suppliers
7. Time-based Competitors: JIT, MRP, And Related Topics
8. Lot Sizing And Quick Change Flexibility
2

3. Designed-in Quality: Products,
Service, and Process Planning
Quality Management
Real-World Example of Quality Management
➔ the act of overseeing all activities and tasks
that must be accomplished to maintain a
desired level of excellence.
➔ determination of a quality policy, creating and
implementing quality planning and
assurance, and quality control and quality
improvement.
● The most famous example of TQM is Toyota's implementation of the Kanban system. A kanban
is a physical signal that creates a chain reaction, resulting in a specific action. Toyota used this idea
to implement its just-in-time (JIT) inventory process. To make its assembly line more efficient, the
company decided to keep just enough inventory on hand to fill customer orders as they were
generated. Therefore, all parts of Toyota's assembly line are assigned a physical card that has an
associated inventory number. Right before a part is installed in a car, the card is removed and moved
up the supply chain, effectively requesting another of the same part.
3

4. Quality Control and Continuous
Improvement
Quality Control Methods
Quality Control
➔ X-Bar Chart: where the y-axis on the
chart tracks the degree to which the variance
of the tested attribute is acceptable. The x-
axis tracks the samples tested.
➔ Taguchi Method: emphasizes the roles
of research and development, product
design, and product development in reducing
the occurrence of defects and failures in
products.
➔ 100% Inspection Method: involves
looking at and assessing all parts of a
product; done to rule out flaws in products;
often used to evaluate valuable metals and
produce.
● a process through which a business seeks to
ensure that product quality is maintained or
improved.
● a process through which a business seeks to
ensure that product quality is maintained or
improved.
● involves testing units and determining if they are
within the specifications for the final product.
4

5. Demand Management And
Forecasting:
Demand Management
Forecasting
● a process within an organisation which
enables that organisation to tailor its
capacity to meet variations in demand or
to manage the level of demand using
marketing or supply chain management
strategies.
● a technique that uses historical
data as inputs to make informed
estimates that are predictive in
determining the direction of
future trends.
5

6. Demand Management And
Forecasting:
Demand Management
● a process within an organisation which
enables that organisation to tailor its
capacity to meet variations in demand or
to manage the level of demand using
marketing or supply chain management
strategies.
What are the challenges of demand management?
- a poor understanding of automated algorithms, effectively how the parameters have been
set on the replenishment systems.
- the balancing act for sales and working with retailers to create demand modelling to
determine the timing, level and location of promotions.
- ‘elusive signals’ whereby manufacturers do not have a data structure or an established
process for receiving, storing and using point of sale data from retailers.
https://www.cips.org/knowledge/procurement-topics-and-skills/operations-management/demand-management/#:~:text=Demand%20management%20is%20a%20process,or%20supply%20chain%20management%20strategies.
6

7. Demand Management And
Forecasting:
Demand Management
● a process within an organisation which
enables that organisation to tailor its
capacity to meet variations in demand or
to manage the level of demand using
marketing or supply chain management
strategies.
Potential Advantages of Good Demand Management
- relies on accurate data and there is a need for collaborative demand forecasting, where firms reach a
consensus, both internally and with their value chain partners on the expected level, timing, mix and location
of demand.
- In return the following advantages of demand management should be experienced:
- Successfully anticipating and planning demand can provide a competitive advantage
- Improvement of demand forecasting is a key factor for improving supply chain operations
- Demand management can generate revenues by behaving proactively and driving the market through
https://www.cips.org/knowledge/procurement-topics-and-skills/operations-management/demand-management/#:~:text=Demand%20management%20is%20a%20process,or%20supply%20chain%20management%20strategies.
7

8. Demand Management And
Forecasting:
Forecasting
● a technique that uses historical
data as inputs to make informed
estimates that are predictive in
determining the direction of
future trends.
How Forecasting Works
- Investors utilize forecasting to determine if events affecting a company, such as sales expectations, will
increase or decrease the price of shares in that company.
- Stock analysts use it to extrapolate how trends, such as GDP or unemployment, will change in the coming
quarter or year. The further out the forecast, the higher the chance that the estimate will be inaccurate.
- statisticians can utilize forecasting to analyze the potential impact of a change in business operations.
- it addresses a problem or set of data
https://www.investopedia.com/terms/f/forecasting.asp#:~:text=Forecasting%20is%20a%20technique%20that,an%20upcoming%20period%20of%20time. 8

9. Demand Management And
Forecasting:
Forecasting
● a technique that uses historical
data as inputs to make informed
estimates that are predictive in
determining the direction of
future trends.
Features of Forecasting
- relates to future events.
- needed for planning process because it devises the future course of action.
- defines the probability of happening of future events.
- made by analysing the past and present factors which are relevant for the functioning of an
organisation.
- The analysis of various factors may require the use of statistical and mathematical tools and
techniques.
https://www.yourarticlelibrary.com/management/forecasting/forecasting-roles-steps-and-techniques-management-function/70032 9

10. Demand Management And
Forecasting:
Forecasting
Helps the managers in the following ways:
- Basis of Planning
- Promotion of Organization
- Facilitating Coordination and Control
- Success in Organisation
https://www.yourarticlelibrary.com/management/forecasting/forecasting-roles-steps-and-techniques-management-function/70032
Steps in Forecasting
10

11. Demand Management And
Forecasting:
Forecasting
Qualitative Forecasting
- useful in developing forecasts with a limited scope. These
models are highly reliant on expert opinions and are most
beneficial in the short term.
https://www.investopedia.com/terms/f/forecasting.asp#:~:text=Forecasting%20is%20a%20technique%20that,an%20upcoming%20period%20of%20time.
Quantitative Forecasting
- exclude expert opinions and utilize statistical data based
on quantitative information.
- includes time series methods, discounting, analysis of
leading or lagging indicators, and econometric modeling.
11

12. Demand Management And
Forecasting:
Forecasting
Qualitative Forecasting
- Market research:
- Polling a large number of people on a specific product or
service to predict how many people will buy or use it once
launched.
- Delphi method:
- Asking field experts for general opinions and then
compiling them into a forecast.
https://www.investopedia.com/articles/financial-theory/11/basics-business-forcasting.asp
Quantitative Forecasting
- Indicator approach:
- depends on the relationship between certain indicators, such as GDP
and unemployment rate remaining relatively unchanged over time
- Econometric modeling:
- a more mathematically rigorous version of the indicator approach.
- tests the internal consistency of datasets over time and the significance
or strength of the relationship between datasets.
- Time series methods:
- use past data to predict future events.
- By tracking what happened in the past, the forecaster hopes to get at
least a better than average view of the future.
12

13. Demand Management And
Forecasting:
Forecasting
Techniques of Forecasting
- Historical Analogy Method
- forecast in regard to a particular situation is based on
some analogous conditions elsewhere in the past.
- Survey Method
- suitable for forecasting demand—both of existing and
new products.
- Opinion Poll
- conducted to assess the opinion of the experienced
persons and experts in the particular field whose views
carry a lot of weight.
- Business Barometers
- index numbers are used to measure the state of an
economy between two or more periods.
https://www.yourarticlelibrary.com/management/forecasting/forecasting-roles-steps-and-techniques-management-function/70032 13

14. Demand Management And
Forecasting:
Forecasting
Techniques of Forecasting
- Time Series Analysis
- involves decomposition of historical series into its various
components, viz. trend, seasonal variances, cyclical
variations, and random variances.
- Regression Analysis
- used to estimate the changes in one variable as a
result of specified changes in other variable or
variables.
- Input-Output Analysis
- output is based on given input if relationship between
input and output is known.
- input requirement can be forecast on the basis of final
output with a given input-output relationship.
https://www.yourarticlelibrary.com/management/forecasting/forecasting-roles-steps-and-techniques-management-function/70032 14

15. Demand Management And
Forecasting:
Economic Indicator
Indicators include but are not limited to:
- a piece of economic data, usually of
macroeconomic scale, that is used by
analysts to interpret current or future
investment possibilities.
- mostly have a specific schedule for release,
allowing investors to prepare for and plan
on seeing certain information at certain
times of the month and year.
https://www.investopedia.com/terms/e/economic_indicator.asp
- The Consumer Price Index (CPI)
- Gross domestic product (GDP)
- Unemployment figures
- Price of crude oil
15

16. Master Planning
– For Capacity And Output:
Capacity
16
- the maximum level of output that a
company can sustain to make a product or
provide a service.
- ties into the fact that all production operates
within a relevant range.
WILL KENTON Updated January 25, 2021
https://www.investopedia.com/terms/c/capacity.asp
“Planning for capacity requires management to
accept limitations on the production process.”
Capacity Managers
- deal with external goods or services like
outgoing and incoming freight;
- manage a more technical type of capacity,
- or manage employees on hand at any
given time for a large customer service
provider.
Factoring in Bottlenecks
- a point of congestion that slows the
process, such as a delay in getting denim
materials to the factory floor or producing
flawed pairs of jeans due to poor employee
training.

17. Master Planning
– For Capacity And Output:
Capacity Planning Strategy
17
- involves the process used to determine the
resources manufacturers need to meet the
demand for their products or services.
Ali Raza “Capacity Planning Strategy – Everything you need to know” June 2020
https://throughput.world/blog/product/capacity-planning-strategy/#:~:text=Capacity%20management%20and%20planning%20strategy,produce%20to%20satisfy%20customer%20demand.
“The level of capacity directly relates to the
amount of output in the form of goods and
services manufacturers can produce to satisfy
customer demand.”
Advantages
- can guide manufacturers on how much raw
materials, equipment, labor, and investment in
facilities need to be acquired over a period of
time to meet the future demand over products.
- helps adequately plan manufacturing
resources.
- Excess Capacity: the manufacturer’s
money is being spent inefficiently.
- Low Capacity: the inability of the
manufacturer to produce as per what the
customer wants at a particular period of
time.

18. Master Planning
– For Capacity And Output:
Types of Capacity Planning Strategy
18
- involves an upfront investment in more capacity that is needed
and is one of the most aggressive approaches used.
Ali Raza “Capacity Planning Strategy – Everything you need to know” June 2020
https://throughput.world/blog/product/capacity-planning-strategy/#:~:text=Capacity%20management%20and%20planning%20strategy,produce%20to%20satisfy%20customer%20demand.
LEAD STRATEGY
LAG STRATEGY
- manufacturers respond to an actual increase in demand and
boost capacity after the current operation runs in full steam.
MATCH STRATEGY
- Instead of boosting demand ahead of time or increasing demand
after the existing capacity is exhausted, this strategy uses smaller
incremental changes to the manufacturers’ capacity.
DYNAMIC STRATEGY
- It involves adding capacity, large or small, before it is required,
based on actual demand and sales forecast figures.

19. Flow – Control System
Overview:
“A significant part of a manager’s job is
to control the processes involved in the
successful operation of a business.”
19
Key Elements of Control
Condition or Characteristic
- Controllers can, however, determine the key conditions or
characteristics of output and monitor them.
Sensor
- managers must integrate the various communications and data
collecting sensors that procure and pass information from the
system to management.
Comparison with Standards
- Information should be collected and interpreted in a timely and
accurate way by management and then benchmarked against
previously stated organizational or competitive standards.
Implementer
- This is often referred to as a series of corrective actions that
address and test issues with the process in the next control
cycle.
https://courses.lumenlearning.com/boundless-management/chapter/managing-control/

20. Flow – Control System
Overview: “Managing control is essential to making
sure that a process or system is running
effectively within an organization.”
20
Barriers to Managing Control
Resource Scarcity
- These resources include supervisory staff, skilled specialists, tools to
measure the control of the system, and often complex statistical software
and other tracking technologies.
Inaccurate Measurement
- Inaccurate measurement while managing control can happen for a
number of different reasons, including:
- Inaccurate measuring devices
- Misunderstanding of the measurement process by staff
- Inaccurate or misleading measurement processes
- Lack of staff training to determine how to measure the control process
Information Flow Issues
- This time lag in information flow can misdirect management to problems
at the wrong time in the sequence.
https://courses.lumenlearning.com/boundless-management/chapter/managing-control/

21. Purchasing: Quest For High-
quality Suppliers:
Purchasing System
21
- a process for buying products and services encompassing
purchase from requisition and purchase order through product
receipt and payment.
- a key component of effective inventory management in that they
monitor existing stock and help companies determine what to
buy, how much to buy and when to buy it.
- ensures that only necessary purchases are made and that they
are made at reasonable prices.
- augmented through automated systems like purchase-to-pay and
economic models such as economic order quantity.
Computerized Purchasing Systems
- can cut companies' administrative costs, shorten the length of the
purchase cycle and reduce human error, thereby minimizing shortages.
- can also simplify order tracking and make it easier to manage purchasing
budgets by quickly creating expenditure reports.
https://www.investopedia.com/terms/p/purchasing-system.asp#:~:text=Purchasing%20systems%20are%20a%20key,on%20economic%20order%20quantity%20models.

22. Purchasing: Quest For High-
quality Suppliers:
Economic Order Quantity Model
22
- used in inventory management by calculating the number of units a company should purchase for its
inventory with each batch order to reduce the total costs of its inventory.
- seeks to ensure that the right amount of inventory is ordered per batch so a company does not have to
make orders too frequently and there is not an excess of inventory sitting on hand.
https://www.investopedia.com/terms/p/purchasing-system.asp#:~:text=Purchasing%20systems%20are%20a%20key,on%20economic%20order%20quantity%20models.
Purchase-to-Pay
- an integrated system that fully automates the goods
and services purchasing process for a business.
- begins with requisitioning, then proceeds to
procurement, and ends with payment.
- seeks to optimize the purchasing process, thereby
benefiting the organization through better financial
controls and efficiency.

23. Time-based Competitors: JIT,
MRP, And Related Topics:
Time-Based Competition
23
- a demonstration of the power of time
management, and how companies can
use it to gain a competitive advantage.
- concept was made well known in the
business world by BCG’s George Stalk
- the concept that companies that meet the
needs of their customers, and respond to
market changes faster than the
competitors, grow faster and are more
profitable than others in the industry.
https://www.bcg.com/about/overview/our-history/time-based-competition

24. Time-based Competitors: JIT,
MRP, And Related Topics:
How does Time-Based
Competition Work?
24
- By reducing or eliminating time delays, it produces a
time-based competitive advantage.
https://www.bcg.com/about/overview/our-history/time-based-competition
Manufacturing
Sales and Distribution
- optimize sales and distribution channels to prevent
the loss of any time-based gains from refining the
manufacturing process.
Innovation and Product Development
- bring out products faster than their competitors
when it comes to innovation cycles.

25. Time-based Competitors: JIT,
MRP, And Related Topics:
Just-in-Time (JIT)
25
- a management strategy that aligns raw-
material orders from suppliers directly with
production schedules.
- employ this inventory strategy to increase
efficiency and decrease waste by receiving
goods only as they need them for the
production process, which reduces inventory
costs.
https://www.investopedia.com/terms/j/jit.asp#toc-advantages-and-disadvantages-of-jit
ADVANTAGES DISADVANTAGES
manufacturers can quickly
move from one product to
another
potential disruptions in the
supply chain
reduces costs by
minimizing warehouse
needs
If a raw-materials supplier
has a breakdown and
cannot deliver the goods
promptly
spend less money on raw
materials
sudden unexpected order
for goods may delay the
delivery of finished
products
Example
Executives at Toyota in the
1970s reasoned that the
company could adapt more
quickly and efficiently to
changes in trends or
demands for model changes
if it did not keep any more
inventory in-store than was
immediately needed.

26. Time-based Competitors: JIT,
MRP, And Related Topics:
Material Requirements
Planning (MRP)
26
- a computer-based inventory management
system designed to improve productivity for
businesses.
- answers three questions: What is needed?;
How much is needed?; & When is it needed?
- this technology provides meaningful
information to managers about their need for
labor and supplies
https://www.investopedia.com/terms/m/mrp.asp
Steps of Material Requirements Planning
Estimating demand and the materials required to meet it.
Check demand against inventory and allocate resources.
Production scheduling.
Monitor the process.

27. Time-based Competitors: JIT,
MRP, And Related Topics:
Material Requirements
Planning (MRP)
27
- earliest of the integrated information technology
(IT) systems that aimed to improve productivity for
businesses by using computers and software
technology.
- a system that helps manufacturers plan, schedule,
and manage their inventory during the
manufacturing process. It is primarily a software-
based system.
- MRP's objective is threefold:
- Make sure raw materials are available for
production when required
- Maintain the lowest possible material and
component levels
- Plan and schedule manufacturing activities
https://www.investopedia.com/terms/m/mrp.asp
ADVANTAGES DISADVANTAGES
Assurance that materials
and components will be
available when needed
Heavy reliance on input data
accuracy (garbage in,
garbage out)
Minimized inventory levels
and costs associated
MRP systems can often be
difficult and expensive to
implement
Optimized inventory
management
Lack of flexibility when it
comes to the production
schedule
Reduced customer lead
times; Increased
manufacturing efficiency,
labor productivity, and
overall customer satisfaction
Introduces the temptation to
hold more inventory than
needed

28. Lot Sizing And Quick Change
Flexibility:
Lot (Securities Trading)
28
- the number of units of a financial instrument bought on an exchange.
- a fixed quantity of units and depends on the financial security traded.
Types of Lots
- Bonds
- Options
- Futures
- Forex Lots
Examples
In the options and futures
markets, trading in lots isn't
as much of a concern since
you can trade any number of
contracts desired. Each stock
option will represent 100
shares, and each futures
contract controls the contract
size of the underlying asset.
https://www.investopedia.com/terms/l/lot.asp

29. Lot Sizing And Quick Change
Flexibility:
Lot Size
29
- refers to the quantity of an item ordered
for delivery on a specific date or
manufactured in a single production run.
- basically refers to the total quantity of a
product ordered for manufacturing.
Examples
when we buy a pack of six chocolates, it refers to
buying a single lot of chocolate.
https://economictimes.indiatimes.com/definition/lot-size

30. Lot Sizing And Quick Change
Flexibility:
Lot Size
30
- refers to the quantity of an item ordered for
delivery on a specific date or manufactured
in a single production run.
- basically refers to the total quantity of a
product ordered for manufacturing.
Lot Sizing Procedures
https://genlots.com/lot-sizing-in-industrial-purchasing/
1. Fixed Order Quantity - ordering a fixed quantity
when the reorder point is reached.
2. Economic Order Quantity - an order quantity
that minimizes the total holding costs and ordering
costs. Formula: Q= (2DS/H)0,5
3. Lot for Lot (L4L) - ordering the exact amount that
matches the net requirement for each period
4. Single Lot - ordering the total requirement for the
defined period in one go

31. END
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