Managing Business Processes: Demand ManagementCheng Li, Ph.D.California State University, Los AngelesJanuary 2002

Review AssumptionsConvert assumptions into numbersSales Plan by Product FamilySales Plan by ItemProactive Sales PlansMeasure Actuals against PlansSALES PLANNING PROCESS

ForecastingForecasting Techniques:based on historybased on causal relationshipsbased on peoples opinions

Strategies for Managing DemandPartitioning DemandOffering Price IncentivesPromoting Off-Peak DemandDeveloping Complementary ServicesUse Reservation Systems and Handling Overbooking Problem

Managing Business Processes: Capacity Management

Capacity Planning StrategiesLevel StrategyChase StrategyMixed Strategy

Workforce SchedulingCapacity of i Requirement of iWhat is the requirement when there is uncertainty?What is the basic time window?Capacity constraintsavailability constraintswork schedule constraints

Workforce SchedulingSolution Techniquesqueuing theorylinear programmingspreadsheet

Linear ProgrammingMinimize: Total CostSubject to: Capacity availabilityWork schedule constraintsCapacity requirementsetc.

Issues in SchedulingOverlapping shift schedulesPart-time workersDays-off schedules

Inventory ManagementWhat is inventory?delay in work flowWhy keep inventory?Reduce ordering costDeal with demand uncertaintyDeal with uncertainty in the work processetc.

Input/Output AnalysisChange in inventory = Input - OutputAverage throughput time is proportional to the level of inventory.

Flow and InventoryFigure 11.1

MRPA general framework for MRPInputs: Bill of Materials, Inventory Files and Master Production ScheduleMRP Processing

A General Framework of MRPAggregate PlanMaster ProductionScheduleMRPCapacity RequirementsPlanningProduction Scheduling

Master Production Schedule

Week

1

2

3

4

5

6

7

8

M1

23

23

23

23

M2

10

10

10

Bill of MaterialsFigure 15.10

Inventory FilesOn-HandOpen OrdersLead TimesVendor InformationQuality records, etc.

MRP ExplosionFigure 15.11

MRP ExplosionFigure 15.11

Issues in MRPTwo basic concepts:Net requirementsLead time offsetLot sizeSafety stock/Safety lead timeInventory recordsValidity of the schedules

JIT and Inventory ManagementInventory as delay in work flowWhy inventory?Dealing with fluctuations in demandDealing with uncertaintyReducing transaction costsTaking advantage of quantity discountHedging against inflation, etc.

JIT and Inventory ManagementInventory costs:Holding costLong response timeLow flexibilitySlow feedback in the system

JIT and Inventory ManagementThe objective of JIT: General: reduce wasteSpecific: avoid making or delivering parts before they are neededStrategy:very short time windowmixed modelsvery small lot sizes.

JIT and Inventory ManagementPrerequisites:Reduce set up time drasticallyKeep a very smooth production processCore Components:Demand driven scheduling: the Kanban systemElimination of buffer stock

JIT and Inventory ManagementCore Components: (cont.)Process Design:Setup time reductionManufacturing cellsLimited work in processQuality Improvement

But some may be scrap.The series starts with the MRP record for the end item.