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.