Demand management

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Demand Management is a planning methodology used to forecast [predict], plan for and manage the demand for products and services. This can be at macro levels as in economics and at micro levels in public service organizations both governmental and NGO, industries including energy. Demand Management has a very defined set of processes, capabilities and recommended behaviors for companies that produce all manner of goods and services. Consumer electronics and goods companies often lead in the application of demand management practices to their demand chains; demand management outcomes are a reflection of policies and programs to influence demand as well as competition and options available to users and consumers. Effective demand management follows the concept of a "closed loop" where feedback from the results of the demand plans is fed back into the planning process to improve the predictability of outcomes. Many practices reflect elements of the theory of Systems Dynamics. Increasingly volatility is being recognized as significant an issue as the focus on variance of demand to plans and forecasts. [1]

Demand Management in economics[edit]

Macroeconomics[edit]

In macroeconomics, demand management is the art or science of controlling aggregate demand to avoid a recession.

Demand Management at the macroeconomic level involves the use of discretionary policy and is inspired by Keynesian economics, though today elements of it are part of the economic mainstream. The underlying idea is for the government to use tools like interest rates, taxation, and public expenditure to change key economic decisions like consumption, investment, the balance of trade, and public sector borrowing resulting in an 'evening out' of the business cycle. Demand management was widely adopted in the 1950s to 1970s, and was for a time successful. However, it did not prevent the stagflation of the 1970s, which is considered to have been precipitated by the supply shock caused by the 1973 oil crisis.

Theoretical criticisms of demand management are that it relies on a long-run Phillips Curve for which there is no evidence, and that it produces dynamic inconsistency and can therefore be non-credible.

Today, most governments relatively limit interventions in demand management to tackling short-term crises, and rely on policies like independent central banks and fiscal policy rules to prevent long-run economic disruption.

Natural resources and environment[edit]

In natural resources management and environmental policy more generally, demand management refers to policies to control consumer demand for environmentally sensitive or harmful goods such as water and energy. Within manufacturing firms the term is used to describe the activities of demand forecasting, planning, and order fulfillment. In the environmental context demand management is increasingly taken seriously to reduce the economy's throughput of scarce resources for which market pricing does not reflect true costs. Examples include metering of municipal water, and carbon taxes on gasoline.

Welfare economics[edit]

Demand Management in economics focuses on the optimal allocation resources to affect social welfare..

Welfare economics uses the perspective and techniques of microeconomics, but they can be aggregated to make macroeconomic conclusions. Because different "optimal" states may exist in an economy in terms of the allocation of resources, welfare economics seeks the state that will create the highest overall level of social welfare.

Some people object to the idea of wealth redistribution because it flies in the face of pure capitalist ideals, but economists suggest that greater states of overall social good might be achieved by redistributing incomes in the economy.[2]

Because welfare economics follows the techniques of microeconomics, where demand planning is part of the process especially the redistribution of the funds through government taxes, fees and royalties to programs for societal good, such as roads, services, income support and agriculture support programs.

Demand Management as a business process[edit]

Demand Management, as defined by APICS currently, is:[3]

5.4 Demand management and forecasting

Demand management and forecasting is recognizing all demand for goods and services to support the marketplace. Demand is prioritized when supply is lacking. Proper demand management facilitates the planning and use of resources for positive and profitable results and may involve marketing programs designed to increase or reduce demand in a relatively short time.[3]

5.4.1 Planning horizon

The planning horizon is how far a plan extends into the future and is dictated by tactical and strategic degrees of uncertainty. The tactical horizon may be based on the cumulative lead time needed to procure or produce low-level components. The strategic horizon is based on the time needed to adjust capacity. A greater degree of uncertainty requires a longer planning horizon.[a]

Demand Management is both a stand alone process and one that is integrated into Sales and Operations Planning (S&OP) or Integrated Business Planning (IBP). The definition of the process and components covered in this section describe the current best practices encompassing the methods and competencies that have a track record of success with leading companies today. Much effort is put into more esoteric financial or academic approaches; however their practical value is limited by the ability of business practitioners to use on a regular basis. As those methods become more accessible and part of regular use they join the best practices, "predictive forecasting" covered in this section is a great example.

Demand Management in its most effective form has a broad definition well beyond just developing a "forecast" based on history supplemented by "market" or customer intelligence, and often left to the supply chain organization to interpret. Philip Kotler, a noted expert and professor of marketing management notes two key points: 1. Demand management is the responsibility of the marketing organization (in his definition sales is subset of marketing); 2. The demand "forecast" is the result of planned marketing efforts. Those planned efforts, not only should focus on stimulating demand, more importantly influencing demand so that a company's [business'] objectives are achieved. George Palmatier a noted expert on the practical approach to demand management calls this "Marketing with a Big M".

The components of effective demand management, identified by George Palmatier and Colleen Crum, are: 1. Planning Demand; 2. Communicating Demand; 3. Influencing Demand and 4. Prioritizing Demand.[4]

Understanding the elements of Demand Management[edit]

1. Planning Demand: Which involves a full multiple-view process or work flow; including statistical forecast as a baseline from clean "demand history" [not shipments], using the most effective statistical models. Kai Trepte, developed the excel add-in "Forecast X" to provide practitioners with a workstation capability to assess the best matches between data and forecast models. Increasingly "predictive forecasts" have moved from a limited use to becoming best practice for more companies. Predictive forecasts use simulation of potential future outcomes and their probabilities rather than history to form the basis for long range (5-10+ years) demand plans. Baseline forecasts are typically developed by demand planners and analysts, who may be regional or centrally located. They work under the guidance of the Demand Manager. Baseline forecasts are communicated to members of the demand management team. This usually includes: regional sales leaders, market managers, and product managers. The team may include customer service leads who manager orders under service agreements with customers and have direct insight into customer demand. For major retailers this is often Point of Sale data provided to suppliers.[5][6]

Demand management in IT[edit]

IT / IS demand managers seek to understand in advance how to best meet the needs and expectations of customers, clients, partners, and enablers.

Thus, proper forecast and sizing of demand is required in order to deliver a stable and effective technology environment.

See also[edit]

Notes[edit]

  1. ^ In Crum and Palmatier's Demand Management Best Practices they note that at the time of their publication APICS did not have a current definition of Demand Management. The definition above is current and reflects how the leading practices have become more mainstream for practitioners.

References[edit]

  1. ^ Kamal, John. "Best Practice Demand Planning Meets Unprecedented Demand Volatility". Supply Demand Chain Executive. 
  2. ^ "Welfare Economics", Investopedia
  3. ^ a b "APICS OMBOK Demand framework". APICS. APICS. Retrieved 14 June 2015. 
  4. ^ Crum & Palmatier, p. 11.
  5. ^ Crum, Colleen; Palmatier, George (2003). Demand Management Best Practices. Boca Raton, Florida: J Ross Publishing. ISBN 1932159010. 
  6. ^ Trepte, Kai. "Kai Trepte". Linked In. 

External links[edit]