Demand Planning: Methods and Inventory Management

• Demand planning is a supply chain process that forecasts product demand to ensure timely delivery and customer satisfaction.
• The goal of demand planning is to balance inventory levels with customer needs, avoiding both surpluses and shortages.

Avoiding Surplus Inventory

• Enhance stock ordering by monitoring customer interactions with products to ensure accurate product selection.
• Staff should actively listen to customer feedback regarding product quality and needs.
• Focus on forecasting demand for products with high turnover, as they significantly contribute to revenue and profit.
• Strategically order smaller quantities of less popular items to prevent overstocking, and invest in stocking more requested items.
• Explore the possibility of suppliers shipping directly to customers.

Demand Planning Methods

• Demand Projections: Use historical sales data and statistical methods to forecast overall product demand.
• Market Intelligence: Collect market data to evaluate the potential impact of events or trends on sales and pricing.
• Production Coordination: Integrate sales, marketing, and operations to align supply with demand, accounting for constraints like factory capacity or material availability.
• Capacity Planning: Ensure adequate resources, machinery, and assembly processes are available to meet expected production needs.
• Staged Manufacturing: Manufacture or assemble products partially in advance, holding them in a semi-finished state until order details are finalized, allowing for flexible customization.
• Measuring Performance: Assess the effectiveness of the demand plan by comparing product fulfillment rates with inventory levels and manufacturing capacity.

Forecasting Methods in Supply Chain Management

• Simple Linear Programming: Finds the best solution to a problem using mathematical optimization, helping businesses decide how much to produce within constraints.
• Linear Regression: A statistical method illustrating the relationship between a dependent and independent variable, measuring how changes in one factor affect another.
• Lead Time Analysis: Calculates the total time from order placement to final product receipt, which is crucial for determining safety stock and reorder points.
• Safety stock inventory is extra stock kept to prevent shortages from demand fluctuations or supply chain delays.

Advantages of Lead Time Reduction

• Reduced carrying/holding costs associated with storing inventory.
• Streamlined operations.
• Improved productivity.
• Improved flexibility during rapid shifts in the market.
• Shorter lead times enable businesses to quickly adjust production or inventory levels.
• Faster lead times increases available cash.
• Enhanced ability to outperform competitors through faster, more efficient output.
• Quicker stock replenishment, preventing stockouts and maintaining customer satisfaction.
• Consistent and easier meeting of deadlines.
• Increased cash flow due to enhanced order fulfillment.
• Equation: Average Lead Time = Σ 𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒 Σ 𝑂𝑟𝑑𝑒𝑟𝑠

Lead Time Reduction Strategies

• Implement lead time contracts outlining delivery expectations with all suppliers.
• Placing large bulk orders periodically, creating predictability and maintaining ample stock levels. This can also cut down on shipping costs.
• Use an Inventory Management System to forecast demands, sales reports, and calculate lead times as well as keep track of purchase orders, stock levels, sales data, and carrying costs.
• Examples of inventory management systems are ERP(enterprise resource planner) and MRP ( material resource planner).
• Material Resource Planning (MRP): A system for production planning, scheduling, and inventory control in manufacturing.

Queueing Theory

• Queueing theory is the mathematical analysis of waiting lines, or queues.
• Queueing theory studies how long people or objects wait in line before receiving service.
• Queueing theory aims to predict queue lengths and waiting times through model construction.