Demand Management and Customer Service


Monitoring Forecast:

·         Alerts the forecaster when the forecast accuracy is going out of control.

·         Forecaster takes appropriate action:

1.      Tracking Signals:  Detect forecast Bias

2.      Demand Filter:  Identify unusual demand that exceed predetermined upper and lower control limits

·         Accountability for the forecaster is ESSENTIAL


Reasons for Forecast Inaccuracy:

·         Too Difficult to Understand:  forecasting tool is too difficult to understand/complex

·         Lack of Participation

·         Lack of Compatibility:  between the forecasting tool and the organization… techniques not understood/results not trusted, won’t be followed.

·         Inappropriate forecasting method

·         Data may be Inaccurate (garbage in garbage out)

·         Some Data are Inappropriate:  Dependant demand is NOT forecasted

·         Lack of Monitoring


Forecast Accuracy:

·         Forecast Accuracy % = 100 % – Forecast Error %

·         Measurements:

o   Period Forecast Error

§  Forecast Error = Actual Demand – Forecast Demand

o   Absolute Percentage of Error (APE)

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§  A = Actual Demand

§  F = Forecast Demand

o   Mean Absolute Deviation (MAD)

§  The average amount by which the forecast was in error

§  All else being equal the forecasting method with the smallest MAD would be used.

§  clip_image004

o   Mean Absolute Percentage of Error (MAPE)

o   Standard Deviation

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o   Standard Deviation

§  clip_image008

§  Data points < 30?  Use clip_image010

§  Data points > 30?  Use clip_image012

§  clip_image014

§  e.g. clip_image016 and Mean = 500

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§  Range fall within 267 – 733

§  1σ:  68.26% of observations fall within the range (in example: within 267 – 733)

§  2σ:  95.44% of observations fall within the range (recalculate with 2σ)

§  3σ:  99.74% of observations fall within the range (recalculate with 3σ)

§  Relationship between MAD and Standard Deviation:

§  clip_image020

§  clip_image022


o   Bias:  Consistent deviation from the mean either negative or positive. 

§  Positive Bias?  Forecast is constantly too low

§  Negative Bias?  Forecast is constantly too high

§  clip_image024

§  clip_image026


o   Tracking Signals:  Used to measure forecasting bias

§  clip_image028


o   Demand Filters

§  Quantity limit setting; when actual demand exceeds the forecasted demand by more than a specified number of mean absolute deviations

§  Process for setting Demand Filters:

1.      Select appropriate items with the need for a demand filter (items with heavy demand or long lead times)

2.      Set filter at specific level per management policy (e.g. one month’s production)

3.      Assign responsibility to a planner (he/she reviews demand filter defaults every day)

4.      Discuss and agree on a planned order schedule with the customer

5.      Track demand filters separately

6.      Analyze opportunity for capacity increase for items that consistently trip their demand filter

·         Process for developing a forecast:

1.      Form team (marketing, sales, materials managers, etc..)

2.      Establish policy

3.      Group like items into families

4.      Identify demand characteristics of product

5.      Determine product life cycle stage

6.      Classify items into categories based on revenue (usually A, B, and C items)

7.      Invest in forecasting software

8.      Load up to 36 months of sales history (for new items, use history from a like product)

9.      Examine, modify, or purge sales history by item

10.  Run the forecasting module

11.  Obtain forecasts by family and item from team (these should identify special events that can impact the forecast)

12.  Develop planning bills

13.  Generate rolling forecasts for 13 months or more

14.  Monitor forecast through bias checks, tracking signals, and demand filters           

15.  Work with the forecast, not against it


Customer Relationship Management (CRM)

·         Order Processing

·         Supplier requested changes

·         Substitution products

·         Change orders

·         Order entry accuracy

·         Customer returns


Customer Order Management

·         Accurate database

·         Effective and easy entry systems

·         Accurate product of service availability information

·         Rapid processing

·         Allocation

·         Order confirmation

·         Reliable delivery


Order Management:  Directing, monitoring, planning , and controlling processes related to customer order, manufacturing orders, and purchase orders


Order Service:  Receiving, entering, and promising orders from customers, distribution center, and interplant operations.



·         Most current dates must always be entered into the planning system

·         Must be valid (can’t be in the past) and realistic

·         Customer service must be measured based on the requested date from the supplier

·         Due date changes by customer request must be recorded in system

·         Changes due to supplier constraints must be communicated to the customer


Quick Response (QR)

·         Ability to respond quickly to customers with the proper products, quantities, price and location at minimum cost.

·         Technological Elements of Quick Response (QR)

o   Automatic replenishment

o   Forecasting/planning systems

o   Inventory management systems

o   E-Commerce

o   Streamlined distribution center processing

o   Automated point of sale data

o   Shipping container marking:  Bar – coding


Monitoring Order Status

·         Accurate and Timely Data

·         Priorities management

·         Performance measurement

·         Processing of changes

·         Re-planning


Demand Management

·         Key:  balance predicted sales activity with actual customer orders


Order Promising

·         Available-to-promise:  What’s leftover after all the known customer orders have been filled.  This is what’s available to promise to another customer.

·         Products and other end items

·         Capable-to-promise:  What are we able to make based on raw materials, lead times, and capacity?

·         Service parts

·         Services:  based only on available capacity


Customer Service

·         Defining

o   Addressing the needs, inquiries, and requests from customers

o   A measure of the delivery of a products/service to the customer at the requested time

o   Meeting/Exceeding expectations of the customer

·         Elements

o   Responsiveness

o   Reliability

o   Courtesy

o   Competence

o   Credibility

o   Security

o   Access

o   Lead Time

o   Understanding Expectations

o   Communication


Sales Cycle

·         Three Phases:

1.      Pre-Sales:  Focus on customer expectations

2.      Sales: 

3.      Post-Sales:  claims, complaints, returns, replacements, repairs, etc…


Customer Service Leadership

·         Defined Vision

·         High Standards

·         Being Proactive with customers

·         Modeling Action – Oriented behavior

·         Set Service goals

·         Customer Service Education for all employees

·         Monitoring service performance targets

·         Customer surveys

·         Integrity


Customer Communications:  Remember… service perception is the reality in the eyes of the customer

·         Treat every customer with respect

·         Acknowledge a customer order with a fast promise date

·         Communicate all changes in a timely manner regarding the commit date

·         Tell the truth, even if it’s bad

·         Explain difference between customer requested date and order promise date (if any)

One Comment (+add yours?)

  1. Ivandro Rebello
    Jun 16, 2015 @ 02:16:37

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