Demand Paper

Demand Paper

2003

Prof.

Operations Management / MGT554

University of Phoenix

Introduction

Product (service is also considered a product on this context) demand is an essential part of a business, this is the customer demand. To determine a business demand, forecasting tools are usually employed to obtain the desired information. "A forecast is a prediction of future events used for planning purposes" (Krajewski and Ritzman, 2001, p.174). The main idea behind determining the customer demand is then to plan. To plan the use of resources, the manufacturing schedule; also to determine the amount of resources or items to be manufactured. At the end we want to satisfy our customer needs or expectations with regard obtaining what they are looking for.

As might be expected on an offer/demand system, customers create tendencies for product demand. These tendencies occur as time series and can be grouped in five categories: horizontal, trend, seasonal, cyclical, and random. Horizontal trends are created when variations in the demand occur around a constant mean. Trends are created when the mean value constantly increases or decreases.

Seasonal is a type of trend that can be associated to certain time period. For example, the next day after Thanksgiving is recognized as the highest day in sale for retail business. Another example is the type of clothing brought into stores for summer sales or any other season. Cyclical trends are less predictable since changes happen over long periods of time. Random trends present an unforecastable tendency. (Krajewski and Ritzman, 2001)

Although product demand comes from our customers, it is influenced by two types of factors, internal and external. Internal factors are those created by the product supplier or manufacturer. For example, changes in price, specifications, or marketing provoke calculated changes in demand; usually they are designed to increase demand. On the other hand, new laws, city regulations, acts of nature, and others may vary the demand for a certain product. These influences are not calculated and out of the control of the supplier or manufacturer.

Unlimited Instruments, Inc.

As a distributor for several product lines and manufacturers, forecasting is used at our company at different levels and for different purposes. Individual sales representatives create forecasts based on what they think will sell in the next 90 days. The information is divided by manufacturer but reported to the sales manager as an overall number for 30, 60, and 90 days. The purpose of this forecasting is to determine company profitability by quarter.

In our case we do not relate this forecast directly to customer demand. For that, some of our suppliers request for us to forecast to them our expected sales. To do this we gather the expected sales of all sales representatives for that specific supplier and then report this to our supplier. The type of forecasting done by the sales representatives is one based solely on judgment and for short term (0 to 90 days). From the interview with the clients and the way, from experience, their purchasing departments work they forecast that sale.

Before the judgment forecast of sales representatives is transferred to a supplier it is submitted to an executive opinion. On this process, the sales manager gathers the forecast from all sales representatives and then weighs each item forecasted according to his expertise. Then, a summarized forecast is passed to the supplier. Suppliers then use this information to schedule manufacturing and attend customer demand with proper delivery times.

Some of our suppliers do not request forecast. These must use some quantitative method of forecasting based