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Demand Management

Studies show that average perfect order fill rates vary drastically and are as low as 80% or less in some manufacturing industries.  Others show that retailers experience an average of over 30% loss in sales due to markdowns and over 10% from stockouts on the shelf.   What explains the wide range of perfect fulfillment and why can't companies get closer to 100% fulfillment and 0% waste?

Increasing complexity and uncertainty in supply chains partially explain the root causes of these significant challenges to supply chains, but the environment alone does not explain all of the challenges.  Demand Management is concerned with these questions and the core “disconnects” between the traditional supply chain management activities and the demand generation and management processes. The challenge is to develop integrated demand-supply management processes, involving the matching of supply and demand over all time frames -- during planning, as well as in real-time as demand materializes.

Focus

The major question that was addressed by MIT-CTL's Demand Management activities were: "What strategies, principles, and methods can be leveraged to optimally match supply and demand over time?" The business processes and practices within the scope of the research include:

  • Segmenting the customer base to optimally offer tailored programs and differentiated services.
  • Optimally leveraging the Sales and Operations Planning (S&OP) and Merchandize Planning and Allocation processes.
  • Optimally promising a customer order fulfillment date.
  • Using decision support and supply chain visibility information to enable the above processes.
  • Integrating the above processes

Demand Management Initiatives (Completed)

During his tenure in CTL Dr. Larry Lapide directed two demand management initiatives focused on process innovation in this area. They were the: 1) CTL’s Demand Management Interest Group and 2) Larstan Business Reports' Demand Management Solutions Group.

  1. The Demand Management Interest Group (DMIG) was a one-year CTL Special Interest Group (SIG), that was designed exclusively for Supply Chain Exchange sponsors that had a strong interest in the demand management topic. At a Networking Retreat, held at MIT on December 11, 2007, members shared and transfered knowledge about DM processes within their companies and industries. (See the Demand Management Interest Group Networking Retreat Report for a summary).  In addition, Dr. Lapide participated in events at some members' sites for the purposes of DM training and process profiling, and internal knowledge sharing and transfer. Membership in the DMIG is no longer available.

     
  2. Larstan Publishing, in cooperation with Dr. Lapide, formed the Demand Management Solutions Group. Designed for solution providers it included technology-based solution companies, consultants, and technically-oriented users that collaboratively shared practices and new ideas.  This  two-year group completed its research on January 31, 2009. It was focused on the products and services companies need to enable innovative demand management strategies, principles, and methods.

Dr Lapide is currently a Research Affiliate in CTL and can be reached at llapide@mit.edu.

Publications

Dr. Lapide has written extensively in the trade literature about issues related to demand management. These include:

A related article was published by Professor Yossi Sheffi, "A Demand for Steady Supply", Financial Times, August 22, 2005

Demand Management related MIT theses:

  • Yanika Daniels and Timothy Kenny, “Leveraging Risk Management In The Sales And Operations Planning Process”, June 2008
  • Yanfeng Anna Huang, “Supply Chain Planning Decisions under Demand Uncertainty”, June 2008
  • Ratan Jha, “Customer Focused Collaborative Demand Planning” June 2008
  • Rintiya Arkaresvimun, “Inventory Optimization in a Retail Multi-Echelon Environment”, June 2008
  • Prakit Worawattananon, “Customer Service Driven Supply Chain Segmentation”, June 2008
  • Christopher Honstain, "Sales & Operations Planning in a Global Business", June 2007
  • Gautam Kapur and Bin Liu, "Improving Promotional Effectiveness Through Supplier-Retailer Collaboration", June 2007
  • Jeffrey Axline and Brian Lebl, "Leveraging Downstream Data in the Apparel Footwear Industry", June 2007
  • Ed Kim and Probal Basu,"Customer Segmentation in the Medical Devices Industry", June 2007
  • Zhipeng Li, "Optimizing Order Promising", June 2007
  • Yimin An and Samuel Srethapakdi, "Order Promising & Fulfillment and Customer/Channel Collaboration in Supply Chain Management", June 2006
  • Dimitrios Andritsos and Tony Cragin, "VMI vs. Order Based Fulfillment in a Specialty Chemical Company", June 2006
  • Pakawakul Kootatep and Jinqian Li, "Promotional Forecasting In the Grocery Retail Business", June 2006
  • Tan Peng Kuan, "Demand Management: A Cross-Industry Analysis of Supply-Demand Planning", June 2006
  • Atul Agarwal and Greg Holt, "Reducing Inventory by Simplifying Forecasting and Using Point of Sale Data", June 2005
  • Huiling Gong, "Benefits of Postponement for Fashion Products with Forecast Updates",  June 2005
  • Benjamin Ha, "Designing a Responsive Supply Chain for New Product Launch", June 2005
  • Victoria Shen, "Vendor Managed Inventory vs. Order Based Fulfillment", June 2005
  • Eugene Takenaga, "Initial Purchase of Short-Term Life Cycle Products with Uncertain Demand", June 2005
  • John Parsons, "Using A Newsvendor Model for Demand Planning of NFL Replica Jerseys", June 2004
  • Jared Schrieber, "The Application of Prediction Markets to Business", June 2004

Results to Date

Proceedings of Demand Management Symposium Sep 2004  Download me! Download
A symposium, "Demand Management: Integrating Demand and Supply in Real Time" was sponsored by the MIT-CTL on September 22-23, 2004 in Cambridge, MA. The symposium was intended to identify potential areas of research in DM.
Proceedings of Demand Management Symposium Sep 2006  Download me! Download
A second symposium, "Demand Management: Optimizing Supply and Demand over Time" took place on September 12-13, 2006 at MIT. The symposium participants included Supply Chain Exchange members and involved information-sharing on S&OP, customer service policies, and the building of demand-supply bridging processes.
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