What is Demand Management?

Summary

The transcript discusses demand management in the context of a pizza takeaway shop, explaining how market demand and individual orders affect operations. It highlights the importance of forecasting and managing demand to improve efficiency, particularly during peak times. Strategies like offering discounts during quiet periods, pre-ordering systems, and spreading out large orders can help smooth demand. The key takeaway is that demand can be influenced, and proactive management is crucial for enhancing operational performance, balancing demand peaks, and reducing strain on resources.

Takeaways

• 🍕 Demand refers to both market demand and specific orders from operations.
• 📊 Market demand for takeaway pizzas in New York can be as high as 1 million pizzas per day, mostly during the evenings.
• 🏪 A particular pizza shop’s demand is driven by individual customer orders, which can be stable over time but unpredictable in the short term.
• ⏱️ Forecasting demand can be done on an hourly basis, with peak times like lunch and evenings seeing higher orders per hour.
• 🔄 Demand management is crucial for operations, focusing on customer orders rather than overall market demand.
• 🎯 Operations managers should proactively manage demand instead of reacting to customer surges.
• 📈 Demand management is closely linked to forecasting and capacity planning, both in the short and long term.
• 💡 Smoothing demand throughout the day, such as offering discounts during off-peak hours, can reduce operational strain.
• 📦 Pre-order systems can help manage large orders, distributing them over time to avoid overloading production.
• ⚙️ Effective demand management can significantly improve operational efficiency by influencing demand timing, quantity, and uncertainty.

Q & A

What is the difference between market demand and a specific shop's demand?

Market demand refers to the total number of pizzas wanted by consumers, such as one million pizzas per day in New York, while a specific shop's demand is the number of customer orders that come directly to that pizza shop.

How can demand for a particular pizza shop vary throughout the day?

Demand can be predictable on an hourly basis. For example, a pizza takeaway shop might expect 10 pizzas per hour during the day, 50 per hour at lunchtime, and 70 per hour from 6 pm to midnight.

What is demand management, and why is it important for operations?

Demand management involves taking proactive steps to influence the quantity, timing, and uncertainty of customer orders. It is important because it helps businesses improve their operational performance and handle irregular demand.

How does forecasting demand relate to pizza shop operations?

Forecasting helps predict both short-term and long-term demand, such as expected orders per hour on a Saturday night or total pizzas per month. Accurate forecasts enable better capacity planning.

What challenges arise when a pizza shop faces high demand peaks?

High demand peaks can overwhelm a shop's production capacity, leading to delays or customers leaving. For instance, if 100 people order pizzas but the shop can only make 50 per hour, it cannot meet demand without making adjustments.

What strategies can a pizza shop use to manage demand peaks?

A shop can offer discounts during quiet periods to spread demand or implement a pre-order system. Another strategy could involve delivering a large order in smaller batches over time, such as delivering 33 pizzas per hour instead of all 100 at once.

Why might some operations managers find the idea of demand management strange?

Some might view demand as something fixed—customers walk in and place orders, and businesses must react. However, proactive managers see opportunities to influence and manage demand to improve operations.

How can smoothing demand help a pizza shop operate more efficiently?

By smoothing demand, such as encouraging more orders during quiet periods, a pizza shop can avoid overwhelming peaks that stress production capacity. This leads to a more manageable and efficient workflow.

What role does capacity management play in handling demand?

Capacity management ensures that the pizza shop can meet demand without overwhelming its resources. It involves planning for expected peaks and finding ways to handle irregular demand effectively.

What are the two key takeaways about demand management?

First, there are many ways to influence the quantity, timing, and uncertainty of demand. Second, actively managing demand can significantly improve operational performance by making processes more manageable.

Outlines

00:00

🍕 Understanding Market and Operational Demand

This paragraph explains the concept of demand, distinguishing between market-wide demand and specific operational demand. It uses the example of a pizza takeaway in New York, where overall demand may reach a million pizzas per day. For an individual pizza shop, demand consists of unpredictable customer orders that can vary by the hour. Understanding this difference is crucial for business operations.

⏰ Hourly Breakdown of Demand for a Pizza Shop

Here, the focus shifts to how demand fluctuates throughout the day for a pizza takeaway shop. For instance, during lunch hours, demand can spike to 50 pizzas per hour, with an even higher peak of 70 pizzas per hour during the evening. This illustrates the importance of monitoring demand on an hourly basis to manage operations effectively.

📊 Managing Demand vs. Responding to Orders

This paragraph contrasts overall market demand with the actual orders received by individual businesses. While overall demand is a factor, it’s the specific orders that matter to operational staff. The challenge lies in balancing customer orders and production capacity, which proactive operations managers can address through better planning.

🎯 Proactive Demand Management: Not Just Responding

Here, the text emphasizes the concept of demand management and its relevance to operational efficiency. Rather than simply reacting to incoming orders, proactive managers forecast and manage demand to avoid overwhelming their capacity, especially during peak hours. Managing demand can smooth operations and improve service delivery.

🛠 Strategies to Manage Irregular Demand

The paragraph offers practical strategies for dealing with fluctuating demand. By offering discounts during quiet periods and introducing pre-order booking systems, businesses can balance their workload. For instance, instead of delivering 100 pizzas at once, a pizza shop can schedule smaller deliveries over a longer period.

💡 Key Takeaways of Demand Management

The final paragraph presents two key takeaways: first, businesses can influence the quantity, timing, and uncertainty of demand; and second, managing demand is crucial for improving operational performance. Smoothing demand makes operations more efficient and reduces the strain on resources.

Keywords

💡Demand

Demand refers to the desire and need for products or services in the market. In the context of the video, it encompasses both the overall market demand (e.g., one million pizzas in New York) and the specific orders placed at a pizza shop. The video highlights how demand can fluctuate and how businesses need to manage it effectively to optimize operations.

💡Market demand

Market demand refers to the total demand for a product or service within a specific market, such as the one million pizzas ordered daily in New York. It is broader than individual shop demand and plays a crucial role in shaping a business's understanding of its potential sales volume. The video contrasts market demand with the actual customer orders placed with individual operations.

💡Operations

Operations refer to the internal processes and capabilities of a business to fulfill customer orders. In the video, it is the part of the business that directly handles customer demand, ensuring orders are met. The operations team is more concerned with the actual orders placed rather than the general market demand, and effective demand management is necessary to optimize this.

💡Forecasting

Forecasting is the process of predicting future demand to help businesses prepare for upcoming needs. In the video, forecasting demand on an hourly or weekly basis is emphasized, such as predicting how many pizzas will be ordered during peak times like lunchtime or evenings. This helps businesses allocate resources and plan production more effectively.

💡Capacity management

Capacity management involves ensuring that a business has the ability to meet demand. In the video, it is discussed in the context of handling demand spikes (e.g., making 50 pizzas per hour, but facing a surge of 100 orders). Effective capacity management helps businesses avoid overwhelmed operations and unmet customer needs.

💡Demand management

Demand management is the practice of influencing and regulating customer demand to better align it with the business's operational capacity. The video mentions tactics like offering discounts during off-peak hours or pre-order systems to smooth out demand peaks and make production more manageable. This is presented as a proactive approach for operations managers.

💡Peaks and troughs

Peaks and troughs refer to the fluctuations in demand that businesses experience, with peaks being times of high demand (e.g., 6 pm to midnight) and troughs being periods of low demand (e.g., during the day). The video discusses how businesses can manage these fluctuations by smoothing demand through pricing strategies and pre-orders to reduce operational strain during peaks.

💡Pre-order system

A pre-order system allows customers to place orders in advance, helping businesses plan production and manage demand more efficiently. In the video, it is suggested as a way to reduce the operational challenges of handling large orders, such as delivering 33 pizzas per hour instead of 100 at once. This approach helps smooth demand and avoid overwhelming production capacity.

💡Discounts

Discounts are price reductions offered to customers to incentivize purchases during specific periods. In the video, they are proposed as a strategy to encourage orders during off-peak hours, helping to balance demand throughout the day. By offering discounts during quieter periods, businesses can manage demand and reduce pressure during peak times.

💡Operational performance

Operational performance refers to how efficiently a business can meet customer demand while minimizing costs and maximizing output. The video highlights the importance of improving operational performance through demand management, such as smoothing demand and optimizing capacity. Better operational performance leads to fewer bottlenecks, reduced costs, and improved customer satisfaction.

Highlights

Market demand for takeaway pizzas in New York can reach up to one million pizzas per day, primarily in the evenings.

Individual shop demand is based on specific customer orders, which can be stable on a weekly or monthly basis.

Demand within a day can vary significantly, with peaks such as 50 pizzas per hour during lunchtime and 70 pizzas per hour from 6 PM to midnight.

Operations managers focus on the demand that directly impacts their specific business operations, not the overall market demand.

Demand management involves forecasting and capacity management, which is important in both long and short-term contexts.

Handling irregular and uneven demand is challenging and expensive for business operations like pizza takeaways.

Smoothing demand throughout the day can help reduce pressure on operations during peak times.

Offering discounts during typically quiet times, like the daytime, can help smooth out demand.

Pre-order booking systems can help spread large orders across several hours rather than handling everything at once.

For example, a large house party ordering 100 pizzas could be managed more efficiently by delivering 33 pizzas per hour for three hours.

Demand management helps influence not only the quantity and timing of demand but also how uncertain it is.

Proactive steps in demand management can significantly improve operational performance.

Production capacity limits, such as only being able to produce 50 pizzas per hour, can cause delays if demand exceeds supply.

Irregular demand can be smoothed through strategic initiatives like discounts and pre-order systems.

Demand management is vital for improving the overall efficiency and success of business operations.

Transcripts

when we talk about demand we are

referring to both what the market wants

and what is specifically ordered from

our operations

there is a whole market demand for

takeaway pizzas in New York maybe one

million pizzas per day mostly in the

evenings

but if you are a particular pizza shop

your demand is made up of the customer

orders the overall takeaway shops demand

for a particular shop might be quite

stable and predictable on a weekly or

monthly basis but it is made up of

individual orders which typically arrive

with no Advance warning

if forecasting demand through an

individual day we might consider looking

at it on an hourly basis for example

typically demand for the pizza takeaway

shop could be 10 pizzas per hour during

the day 50 per hour over lunch time and

70 per hour from 6 pm to midnight

talking more generally again the overall

market demand is clearly a key factor in

your own businesses demand but it is the

orders that come to your own

organization's operations that us people

working in operations really care about

the idea of demand management might seem

strange to many I mean the demand is

just what there is customers turn up and

order stuff what can we do about that

if a hundred people walk in the front

door of the pizza takeaway we can't

change that and we only have the

production capacity to make 50 per hour

so the others will just have to wait or

go elsewhere

but that's not the attitude of a

proactive operations manager

the topic of demand management is deeply

related to forecasting and capacity

management both on the long term pizzas

per month and the short term say the

expected demand between 6 and 7 pm on

Saturday nights handling irregular and

uneven Demand on our business operations

is is very hard and expensive and the

same is true for our pizza takeaway

example

they might wisely seek to actively

manage demand and smooth demand

throughout the day reducing the very

challenging Mega Peaks and troughs

it could offer discounts for pizza

orders during the day which is normally

a quiet period and it could initiate a

pre-order booking system so some of the

big orders are less of a supplies

or instead of trying to make and deliver

100 pizzas at once which takes ages and

half of them are then cold instead it

could offer that big customer the

alternative to deliver 33 pizzas per

hour for three hours to their Mega house

party rather than all 100 at once

the two key takeaways of demand

management are a there's lots we can do

to influence demand quantity timing and

how uncertain it is and B that it really

matters to improve our operational

performance if we can make things easier

on ourselves by taking steps to manage

our demand

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thank you

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