Reference no: EM1373750 , Length: 600 Words
The discussion topic is the overall nature of demand affects planning and control. You need to give some response according to existing discussion or specific question.
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Discussion & Background
Slack, Chambers and Johnston (2010) point out that the practice where operations seek to maximize revenue or yield is known as yield management. According to Shumsky (2006) major airlines and their regional partners engage in capacity purchase agreements where the major airline is responsible for such things as scheduling, pricing and revenue management, while it pays its partner to operate specific flight segments. For example, in 2002, American Airlines expended approximately 129 million dollars on capacity purchase agreements while in 2004, the cost rose to 2.1 billion dollars. As such, American Airlines is able to optimize the total revenue network by controlling the seat inventory of its partners (Shumsky, 2006).
Question
In light of the preceding, how do you think organizations which operate in industries with relatively fixed capacity can mitigate the risks associated with yield management? Are those risks uncontrollable?
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Discussion & Background
Given the volatility of demand, one may be tempted to question the accuracy of the demand forecast. As Slack, Chambers and Johnston (p. 302) point out, operations managers must decide output ahead of time in an effort to meet demand. Evidently, this may change before demand occurs or may not even be a true representative of actual demand. According to Chase (2013), organizations can no longer afford to wait for demand and react to it, but must now shape future demand based on estimated customer behavior so as to be in a position to quickly respond to customer demands. Additionally, Chase (2013) reports that due to complex market forces, globalization and advancements in the business arena, simply relying on fixed analytical methods that describe trends and seasonality are no longer sufficient to accurately predict demand but rather, a high integration of influential customer and product strategy is required.
Question
Predicting demand, let alone doing so accurately poses a dilemma in itself. What challenges do you think operations managers face in arriving at an accurate demand forecast? Can these challenges be overcome, or must operations managers find a way of strategizing around them?
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Background / Discussion
The bullwhip effect (BWE) describes the progressive increase in demand variability as one moves upstream in the supply chain (Poiger, 2010). It is caused by the diminishing reliability of demand forecasts as they move up the supply chain from users or retailers to wholesalers, to manufacturers, to suppliers (Lysons& Farrington, 2006 cited in Naude&Badenhorst-Weiss, 2011) and to the producer (Jacobs et al., 2009, pp. 361) cited in Naude&Badenhorst-Weiss, 2011). According to Moll (2013), research shows that small variations in demand from customers produce increasingly magnified variations as demand is transmitted upstream along the supply chain. This causes lack of alignment between supply patterns and demand patterns - therefore, suppliers overcompensate at various stages to avoid stock-outs which causes inventory accumulation at those stages, while at other stages they under-anticipate future demand thereby causing shortages and delays (Naude&Badenhorst-Weiss, 2011).
Question
Can the BWE be found in all types of organization? If not, what types of organizations are not likely to be liable to BWE? What factors might be responsible for this?
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Background / Discussion
You pointed out that "demand patterns are different and require organizations to effectively plan and control their operations so that goods can be delivered to customers as per their convenience". I agree with you regarding both statements.
In case of most of the businesses, demand indeed fluctuates. Demand can have seasonality, for example ice cream or cold beverages are mostly sold in summer, or holiday hotels are mostly booked during the holiday season. In these cases, forecasting demand can rely on experience about the seasonality of the demand.
If demand is uncertain, forecasting becomes difficult that could hinder the effectiveness of the operations because capacity cannot be planned adequately. To overcome the problem of demand fluctuation, Klassen and Rohleder (2001) propose the demand management (DM). They claim that DM could control demand in order it stays on a constant level or it can smooth demand to avoid peaks.
Question
I would like to ask if you could mention some examples (types of business or service) in case of which appropriate demand management could indeed influence demand. If yes, which methods DM could use?