Andy Guo

Planning Demand and Supply in a Supply Chain

Planning Demand and Supply in a Supply Chain

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第三單元 (1) ： Planning Demand and Supply in a Supply Chain

郭瑞祥教授

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Andy Guo

Outline

►Part I: Aggregate planning

►Part II: Managing predictable variability

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Manage Predictable Variability

► Predicable variability is change in demand that can be forecasted.

► A firm must choose two broad options:– Manage supply (manage capacity and manage

inventory)– Manage demand

► Often companies divide the task– Marketing manages demand maximize revenue– Operations manage supply minimize cost

► Separating the supply and demand decisions makes it difficult to coordinate the supply chain

► Designing product flexibility– Lawn mower manufacturers also make snowblowers

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Managing Predictable Variability- Managing Supply -

► Managing inventory

– Time flexibility from workforce– Use of seasonal workforce– Use of subcontracting– Use of dual facilities – dedicated and flexible– Designing product flexibility into the production

processes

► Managing capacity

– Using common components across multiple products– Building inventory of high demand or predictable

demand products

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Managing Predictable Variability- Managing Demand -

► Demand can be influenced using pricing and other forms of promotions.

– Impact of the promotion on demand– Product margins– Cost of holding inventory– Cost of changing capacity

► Demand increase from promotion results from three factors:

► Four key factors influence the timing of a trade promotion:

– Market growth– Stealing market share– Forward buying Microsoft Office 2010多媒體藝廊

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Scenario 4: Aggregate Planning and Promotion at Red Tomato

Month Demand Forecast

January 3,000

February 2,400

March 2,560

April 3,800

May 2,200

June 2,200

► Consider the discount offering in off-peak month of January. The demand forecast is shown below:

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

Microsoft Office 2010多媒體藝廊

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Andy Guo

Scenario 4: Aggregate Planning and Promotion at Red Tomato

Month Demand Forecast

January 3,000

February 2,400

March 2,560

April 3,800

May 2,200

June 2,200

► Consider the discount offering in off-peak month of January. The demand forecast is shown below:

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

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Andy Guo

Optimal Aggregate Plan for Scenario 4

Period

t

No.

Hired

Ht

No. Laid

Off Lt

Workforce

Size Wt

Overtime

Ot

Inventory

It

Stockout

St

Subcontract

Ct

Total

Production

Pt

0 0 0 80 0 1,000 0 0

1 0 15 65 0 610 0 0 2,610

2 0 0 65 0 820 0 0 2,610

3 0 0 65 0 870 0 0 2,610

4 0 0 65 0 0 320 0 2,610

5 0 0 65 0 90 0 0 2,610

6 0 0 65 0 500 0 0 2,610

► Total cost over planning horizon = $421,915► Revenue over planning horizon = $643,400► Profit over planning horizon = $221,485

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Andy Guo

Conclusions based on Scenarios 1, 4 & 5

Scenario 1 Scenario 4 Scenario 5

Cost 422,275 421,915 438,857

Revenue 640,000 643,400 650,140

Profit 217,725 221,485 211,283

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Andy Guo

Scenario 5: Aggregate Planning and Promotion at Red Tomato

Demand fluctuation has increased relative to the profile in scenario 1.

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

► Consider the discount offering in peak month of April.

The demand forecast is shown below:

Month Demand Forecast

January 1,600

February 3,000

March 3,200

April 5,060

May 1,760

June 1,760

Microsoft Office 2010多媒體藝廊

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Andy Guo

Scenario 5: Aggregate Planning and Promotion at Red Tomato

Demand fluctuation has increased relative to the profile in scenario 1.

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 10 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

► Consider the discount offering in peak month of April.

The demand forecast is shown below:

Month Demand Forecast

January 1,600

February 3,000

March 3,200

April 5,060

May 1,760

June 1,760

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Andy Guo

Optimal Aggregate Plan for Scenario 5

Period

t

No.

Hired

Ht

No. Laid

Off Lt

Workforce

Size Wt

Overtime

Ot

Inventory

It

Stockout

St

Subcontract

Ct

Total

Production

Pt

0 0 0 80 0 1,000 0 0

1 0 14 66 0 2,047 0 0 2,647

2 0 0 66 0 1,693 0 0 2,647

3 0 0 66 0 1,140 0 0 2,647

4 0 0 66 0 0 1,273 0 2,647

5 0 0 66 0 0 387 0 2,647

6 0 0 66 0 500 0 0 2,647

► Total cost over planning horizon = $438,857► Revenue over planning horizon = $650,140► Profit over planning horizon = $211,283

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Andy Guo

Conclusions based on Scenarios 1, 4 & 5

Scenario 1 Scenario 4 Scenario 5

Cost 422,275 421,915 438,857

Revenue 640,000 643,400 650,140

Profit 217,725 221,485 211,283

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Andy Guo

Conclusions based on Scenarios 1, 4 & 5

► A price promotion in January (scenario 4) results in a higher profit than no promotion (scenario 1). A promotion in April (scenario 5) results in a lower profit than no promotion (scenario 1).

► Even though revenues are higher when promotions is offered in April, the increase in operating costs makes it a less profitable option.

► Red Tomato should offer the discount in the off-peak month of January.

► The above conclusions could be different if Red Tomato were in a situation in which most of the demand increase comes from market growth or stealing market share rather than forward buying (see scenarios 6 & 7)

► It is not appropriate for a firm to leave pricing decisions solely in the domain of marketing and aggregate planning solely in the domain of operations. It is crucial that forecasts, pricing, and aggregate planning be coordinated in the supply chain.14

Andy Guo

Scenario 6: Aggregate Planning and Promotion at Red Tomato

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

► Consider the discount offering in off-peak month of January.

The demand forecast is shown below:

Month Demand Forecast

January 4,440

February 2,400

March 2,560

April 3,800

May 2,200

June 2,200

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Andy Guo

Scenario 6: Aggregate Planning and Promotion at Red Tomato

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

► Consider the discount offering in off-peak month of January.

The demand forecast is shown below:

Month Demand Forecast

January 4,440

February 2,400

March 2,560

April 3,800

May 2,200

June 2,200

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Andy Guo

Optimal Aggregate Plan for Scenario 6

Period

t

No.

Hired

Ht

No. Laid

Off Lt

Workforce

Size Wt

Overtime

Ot

Inventory

It

Stockout

St

Subcontract

Ct

Total

Production

Pt

0 0 0 80 0 1,000 0 0

1 0 0 80 0 0 240 0 3,200

2 0 11 69 0 140 0 0 2,780

3 0 0 69 0 360 0 0 2,780

4 0 0 69 0 0 660 0 2,780

5 0 0 69 0 0 80 0 2,780

6 0 0 69 0 500 0 0 2,780

► Total cost over planning horizon = $456,750► Revenue over planning horizon = $699,560► Profit over planning horizon = $242,810

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Andy Guo

Conclusions based on Scenarios 1, 6 & 7

Scenario 1 Scenario 6 Scenario 7

Cost 422,275 456,750 536,200

Revenue 640,000 699,560 783,520

Profit 217,725 242,810 247,320

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Andy Guo

Scenario 7: Aggregate Planning and Promotion at Red Tomato

Demand fluctuation has increased relative to the profile in scenario 1.

► Discounting a unit from $40 to $39 results in the period demand’s increasing by 100 percent because of increased consumption or substitution. Further, 20 percent of each of the two following months demand is moved forward.

► Consider the discount offering in peak month of April. The demand forecast is shown below:

Month Demand Forecast

January 1,600

February 3,000

March 3,200

April 8,480

May 1,760

June 1,760

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Andy Guo

Optimal Aggregate Plan for Scenario 7

Period

t

No.

Hired

Ht

No. Laid

Off Lt

Workforce

Size Wt

Overtime

Ot

Inventory

It

Stockout

St

Subcontract

Ct

Total

Production

Pt

0 0 0 80 0 1,000 0 0

1 0 0 80 0 2,600 0 0 3,200

2 0 0 80 0 2,800 0 0 3,200

3 0 0 80 0 2,800 0 0 3,200

4 0 0 80 0 0 2,380 100 3,200

5 0 0 80 0 0 940 0 3,200

6 0 0 80 0 500 0 0 3,200

► Total cost over planning horizon = $536,200► Revenue over planning horizon = $783,520► Profit over planning horizon = $247,320► When forward buying is a small part of the increase in demand from

discounting, Red Tomato should offer the discount in the peak demand month of April.

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Andy Guo

Conclusions based on Scenarios 1, 6 & 7

Scenario 1 Scenario 6 Scenario 7

Cost 422,275 456,750 536,200

Revenue 640,000 699,560 783,520

Profit 217,725 242,810 247,320

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Performance Under Different Scenarios

Regular Price

Promotion Price

Promotion Period

Percent Increase in

Demand

Percent Forward Buy

Profit Average Inventory

$40 $40 NA NA NA $217,725 895

$40 $39 January 20 % 20 % $221,485 523

$40 $39 April 20% 20% $211,283 938

$40 $39 January 100% 20% $242,810 208

$40 $39 April 100% 20% $247,320 1,492

$31 $31 NA NA NA $73,725 895

$31 $30 January 100% 20% $84,410 208

$31 $30 April 100% 20% $69,120 1,492

1

4

5

6

7

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Andy Guo

Conclusions Regarding Promotions

► Pricing and aggregate planning must be done jointly.

► Average inventory increases if a promotion is run during the peak period and decreases if run during off-peak period.

► Promotion during the peak period may decrease overall profitability if a significant fraction of the demand increase results from a forward buy.

► Promotion during the peak period may increase overall profitability if forward buying becomes a smaller fraction of the demand increase.

► As product margin declines, promotion during the peak period becomes less profitable.

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Summary of Impact on Promotion Timing

Factor Favored timing

High forward buying Low demand period

High stealing market share High demand period

High growth of market High demand period

High margin High demand period

Low margin Low demand period

High holding costs Low demand period

High cost of changing capacity Low demand period

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6, 10本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft 服務合約及著作權法第 46 、 50 、 52 、 65條合理使用。

頁碼 作品 授權條件 作者 /來源

5本作品轉載自Microsoft Office 2007多媒體藝廊，依據Microsoft 服務合約及著作權法第 46 、 50 、 52 、 65條合理使用。

版權聲明

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