Demand Management 4 of 4

A METHOD OF INTEGRATING DEMAND AND SUPPLY MANAGEMENT

The approach suggested above is that marketing and operations should work closely together to formulate a strategy that will incorporate both capacity and demand planning, or "demand management" as defined earlier. Showalter and White (1991) addressed the need for future research in this area: "The variability of demand coupled with the direct exposure of the productive system to demand fluctuations suggests that balancing demand rate with output rate may represent an interdependent management problem with several previously unexplored ramifications. This interdependency must be considered if management is to achieve minimum costs for the organization. Although research has focused on resolving the demand-output problem in manufacturing systems, little interest has been given to it in service organizations."

Another approach considers the desired, or intuitive, strategy that would be selected by marketing or operations. Table 2 shows provide and match as the desired strategies for marketing because both strategies use a capacity buffer to handle unexpected demand, or at least try to anticipate the need for extra capacity. With adequate capacity, the quality level of customer service should be improved, and the response time decreased. Conversely, the preferred strategies for operations would be influence and control, because these strategies try to minimize the capacity required. Lower capacity levels usually imply lower investments and, assuming no decline in demand, a higher financial return.

On the other hand, these positions reverse when considering the capability of marketing and operations. Marketing is in a better position to influence and control because of their closer relationship with the customer. Operations is in a better position to provide and match, because these strategies require the change in resources, or capacity levels.

There is a need for both marketing and operations to start with common inputs as to objectives and general strategies of the company. The increased emphasis on strategic planning should help companies to be aware of the need to consider long-term and short-term, tangible and intangible factors, and the importance of congruence between objectives and performance measures. If marketing and operations do not have common objectives, it is unlikely that they will be able to develop an integrated demand management program.

Once they have specified their objectives, each functional area can assess their own internal capabilities and their external, or open system, environment. This is the stage designated as "functional analysis," in which marketing and operations look at the strengths available to them and the threats that may severely hamper them.

After each function has assessed the situation, they can prepare their individual functional strategies, in which they decide what would provide a local optimum, considering only the implications for their particular function. While they formulate this strategy, they also should be sure to identify the critical areas of their strategy, i.e., what must be preserved versus what can be modified.

When functional strategies exist, marketing and operations can compare the two to evaluate the fit. Marketing provides the service package design and operations provides the service process design. If they are compatible, the result can be quickly translated into the total demand management plan, with the areas of interface between marketing and operations clearly identified and highlighted. If the separate plans are not compatible, as usually expected, they must be reconciled. Recognition of differing approaches or emphases requires a resolution to reach the desired outcome. The coordinated demand management program then becomes part of the input for the general business plan of the company.

SUMMARY

This paper explained what demand management is and how it fits within the framework of strategic planning. Four demand management strategies were proposed and described. Table 1 shows a number of specific programs that could be used to operationalize the chosen strategies. Anumber of factors were identified for use in deciding how their existence influences a company's selection of its primary and secondary demand management strategies. A systematic approach to demand management planning was proposed and examples were provided to illustrate how the approach could be used.

Demand management, as a subsystem within the strategic and business planning system, is not yet a well-defined function in most companies. It appears to have potential value to those companies who recognize their need to do a better job of matching resource capacity to customer demand.