Demand management: collates demand from all sources – external (forecasts and orders), internal (other firms within the organisation), and spares. Such demand is called independent – that is, it is independent of the actions of the focal firm. Referring to Figure 5.3, demand is independent up to the customer order decoupling point (CODP). At this point, demand changes from independent to dependent. Upstream from the CODP, in the area referred to as ‘P-time – D-time’, the focal firm assumes responsibility for sourcing and making speculatively – on the assumption that orders will eventually transpire. Thus make to order (MTO, section 5.4) incurs less speculation than assemble to order (ATO) and much less than make to stock (MTS). Speculation implies that it is necessary to forecast demand for the relevant module. Thus, forecasting for sales and operations planning is carried out monthly or quarterly and is at the level of the overall product line. Forecasts for master production scheduling purposes are refreshed frequently for the next few days or weeks, and are made at the level of the individual sku (stock keeping unit). Short term forecasting is carried out using techniques like moving averages and exponential smoothing, which are described in Vollman et al. (2005: 32). Forecast accuracy (comparing forecast and actual values) is measured by such techniques as mean average deviation (MAD). It is only necessary to forecast for independent demand items: demand for dependent items can be calculated.
Figure 6.1 The focal firm ‘game plan’