The Council Of Supply Chain Management Professionals

Published Date: 02 Nov 2017

Because of the distinctive fluctuations in the demand for cement, and due to the fact that cement are produced and consumed simultaneously, cement manufacturing organizations struggle constantly with the problem of matching their capacity levels and demand levels within the short run as well as in the long run. One of the strategies which can be utilized to respond to such situation is called Demand Management.

According to "AviDechter (2007)",Demand Management is the "process of changing the demand patterns of an organization to better match the available capacity of an organization." Examples of demand management practices are, use of a distribution plan/scheduling system for customers and the use of differential pricing schemes for demand smoothing and etc.

Most of the demand management activities/practices are characterized as Demand Smoothing as they primarily aim to increase demand during the slow periods and reduce the demand during peak periods. Smoother demand lessens the need for costly adjustments in capacity. Manufacturing organizations smooth their demand levels by either trying to influence their customers to change the timing of demanding the products (e.g. – giving different benefits to distributors to change their arrival patterns to shipping stations) or by scheduling the arrival of customers (e.g. – scheduling system/distribution plan).

G.Vargas (2009), states that "Demand smoothing enables the peaks and troughs in the demand for materials to be evened out over a period of time. Demand smoothing is a means of looking at the program of activities in the entire value chain and identifying how the activities can be balanced or smoothed to reduce the amount of transport resources, materials and labor needed to carry out the particular task or activity. Demand smoothing can be done at any levels in the supply chain by clients and/or contractors".

A.T. Kearney (1926), states that Demand management is a proven mechanism to take costs out of an organization without further reducing its capacity to execute. It means that with demand management, organizations address the underlying drivers of external spending, align organization’s purchases to their business needs and eliminate unnecessary consumption. It explains that A.T. Kearney suggest that demand management practices need to be implemented within an organization in order to reduce the unnecessary costs of the organization.

The Demand Management process is concerned with balancing the customers’ requirements with the capabilities of the supply chain. This includes forecasting demand and synchronizing it with production, procurement, and distribution capabilities. An important component of demand management is finding ways to reduce demand variability and improve operational flexibility.

Reducing demand variability aids in consistent planning and reduces costs. Increasing flexibility helps the firm respond quickly to internal and external events. Most customer driven variability is unavoidable, but one of the goals of demand management is to eliminate management practices that increase variability, and to introduce policies that foster smooth demand patterns. Another key part of demand management is developing and executing contingency plans when there are interruptions to the operational plans.

Supply chain of an organization is a system/network of organizations/institutions, people, technology, activities, information and resources involved in moving a product or service from supplier to end customer. Supply chain activities transform natural resources, raw materials and components in to a finished product that is delivered to the end customer. In complicated supply chain systems, used products may re-enter the supply chain at any point where left over value is considered as recyclable.

The Council of Supply Chain Management Professionals (CSCMP) defines supply chain management as follows,

"Supply Chain Management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third-party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.

In the 1980s, the term Supply Chain Management (SCM) was developed to communicate the need to integrate the key business processes, from end user through original suppliers. Original suppliers are those who provide products, services and information that add value for end customers and other stakeholders. Fundamental idea behind the SCM is that companies and corporations involve themselves in a supply chain by exchanging information regarding market fluctuations and production capabilities. Keith Oliver, a consultant at Booz Allen Hamilton, is recognized with the term invention when he used it in an interview for the Financial Times in 1982.

The most famous model dealing with supply chain design is provided by Fisher (1997), who differentiates between supply chains for functional goods and innovative goods. Functional goods are usually characterized by stable, predictable demand, long product life cycles, low product variety and low margins. Supply chains for such products mainly compete in terms of costs, which mean they have to be first and foremost efficient. Innovative products are characterized by unpredictable demand, very short product life cycles, high product variety and high margins. Supply chains for such products mainly have to be responsive, which means that the supply chain should be able to react to changes in demand very quickly. Clearly, efficient and responsive supply chains have to be designed differently.

Anupindi and Bassok (1999a), states that supply chain management deals with the management of material, information and financial flows in a network consisting of vendors, manufacturers, distributors and customers. If a particular organization has only one decision maker within their supply chain, it will be defined as a centralized or integrated supply chain. Respectively, a supply chain is called decentralized if the network consists of multiple decision makers having different information and incentives.

Anupindi and Bassok (1999a), classify supply chain contracts according to eight contract parameters, such as; Horizon length, pricing, periodicity of ordering, quantity commitment, flexibility, delivery commitment, quality and information sharing. It means that these parameters need to be included when get in to a supply chain contract with a buyer/supplier.

In contrast, Tsay et al. (1999b) classify the literature on supply chain contracts by eight contract clauses including specification of decision rights, pricing, minimum purchase commitments, quantity flexibility, buy-back or return policies, allocation rules, lead time and quality. It clearly depicts that the type of supply chain contract, which includes above parameters will directly/indirectly affect the higher level of demand variability within an organization.

In practice, there are many hybrid forms of supply chains, combining elements from both generic forms. A very important example for such a hybrid supply chain is the assemble-to-order process. Such a process consists of both an order-driven part and a forecast-driven part. The border between the two parts is called customer order decoupling point (CODP). Upstream of the CODP the process is forecast-driven, which means economies of scale are used to produce efficiently. Downstream of the CODP the process is order-driven, which means the already finished components or parts are not assembled until a binding customer order arrives. Thereby the advantages of both process types are combined.

There are different types of supply chain contracts, which come in to an agreement between a buyer and a supplier. Some of the contracts are Wholesale price contract, revenue sharing contracts, buy-back contracts, quantity flexibility contracts, sales-rebate contracts, quantity discount contracts and etc. These contracts include varieties of conditions and terms to carry out supply chain activities within an organization and also it specifies how the relationship between seller and supplier need to be managed and etc.

A crucial point in supply chain design is how to efficiently deal with uncertainty. Sources of uncertainty in supply chains are suppliers (e.g., delayed delivery), manufacturing (e.g., machine breakdown), and customers (e.g., uncertain demand) (Davis, 1993). This classification was extended by Geary et al. (2002), who added control uncertainty as a fourth source of uncertainty. Control uncertainty comes from the control system, which transforms customer demand into production plans and supplier orders (e.g., order batching). As a result of uncertainty many aspects and factors in a supply chain, likefor instance customer demand or supplier delivery time, have to be treated as random variables, as they are usually not constant and not known in advance. This kind of uncertaintyis also called variability and is usually measured by the standard deviation or by the coefficient of variation.

In order to identify the performance levels of the logistics function of HLL and also to demonstrate the other departments within HLL, that Logistics department carries out important operational activities within the supply chain of HLL, the Logistics and Imports department and the EXCO of Holcim group have introduced and implemented a focus program called "LOGIN" within HLL. This particular program identifies logistics function as a key operational lever to secure cost leadership position of HLL within the cement industry of Sri Lanka. And also it supports the logistics function of the organization to achieve future growth by identifying current weaknesses need to be resolved and any other potential opportunities need to be grasped in the near future. This particular focus program was developed by Holderbank’s logistics experts in year 1999 and thereafter it was declared to be utilized within every company of Holcim group, in order to increase the level of value addition contributed by logistics function towards the supply chain of Holcim group.

Later this particular focus program have extended their scope up to the whole supply chain of an organization and it started to measure the performance levels of supply chain of each and every company within the Holcim group. The main aim of this extended focus program was to improve the supply chain activities within an organization by being more efficient (lower costs and optimizing operating assets and inventories) and more effective (margin enhancing customer satisfaction). By reviewing the performance level of a supply chain of an organization, it identifies specific areas need to be improved/modified in order to sustain benefits towards future and also this "LOGIN" program identifies any processes need to be discontinued within the supply chain of an organization, in order to remain as a competent cost leader within the cement industry.

This particular "LOGIN" focus program consists with 25 building blocks which are arranged as a pyramid and those building blocks covers the whole supply chain of an organization. This program will be carried out by an internal team as well as by an external team. Internal team will be appointed by the departmental heads of different departments within an organization and it should consist with cross functional employees. All the team members are provided with audit sheets and each and every team member will be assigned to carry out an audit up on a particular building block.

Auditing process need to be carried out in an independent manner and after internal team finishes the auditing process, and then the external team begins their auditing process. At the final stage results from both teams will be compared and more priority will be given to the assessment carried out by external team. During the analysis phase of the LOGIN project the "LOGIN" teams will perform a series of analysis to identify improvement potentials in all building blocks of the "LOGIN" pyramid. This will improve the performance levels of supply chain within HLL as well as cost effectiveness of HLL’s supplychain, as the employees of supply chain specifically knows the areas need to be improved to face the future uncertainties within the cement industry of Sri Lanka.

According to a study carried out by Philippe Lassare (2007) on "Globalization Cement Industry", have identified that Holcim is one of the world’s leading suppliers of cement and aggregates as well as ready mix concrete and asphalt including services. The group holds majority and minority interests in more than 70 countries on all continents, and employs around 90,000 people within their plants. According to his analysis Holcim have been positioned as the rank #02 from global competitive position in cement industry. And also they have been ranked as #05 and #03 within global competitive position in aggregate and ready mix concrete industry respectively.

Monthly performance and achievement related magazine published by the Holcim group called "Solution" in November 2011 have published regarding the processes utilized by HLL to build up relationship with their ultimate customers and how they sustain those relationships towards future, in order to attract more businesses in future. The trackrecord of innovation in materials and processes enables HLL to help customers to design and build in situations where cost effectiveness, on-time delivery, durability, customized shapes and excellent finish are paramount. Due to this reason HLL have introduced cement as application based cement. It means based on the requirements of customers, and the purpose up on which the cement will be utilized, customers can decide which brand to be purchased. Not only the solutions given by HLL will save customer’s time and money, HLL also help customers to meet green building standards.

HLL brings expertise to every project, with a focus on added value and sustainability. To help customers to realize their projects, experts of HLL will advise customers on the latest concrete and cement solutions, also in the context of what is possible under local construction practices. State of the art facilities of HLL will deliver the materials which customers specify to the highest standards.

Researches relevant to this project have been conducted in many areas such as Principal Agent analysis, Revenue Management, Sales and Operations planning process (S&OP), effectively managing demand variability in consumer packaged goods, Manage supply chain demand variability with scheduled ordering policies, oligopolistic market, Bull-whip effect and etc.

Principal Agent analysis provides the guidelines of how to develop and maintain a good relationship with suppliers/retailers (agents) by an organization (principal) and vice versa. Based on the principal-agent theories developed by many managerial personnel’s, they have identified that good communication process among both parties (principal and agent) is the back bone of an effective relationship. This will provide a good foundation for a company to manage their demand levels more efficiently and effectively as the key personnel’s of an organization know the existing market conditions for their products as well as they know the level of difficulties faced by their agents.

Revenue management shows how to improve/increase the existing level of revenue by utilizing the resources of the company efficiently and effectively. Most of the time revenue management processes will be targeting at advertising and marketing practices, as those are the functions of an organization which will attract consumers towards their products. In this regard, theorist have also explained that a company should utilize their resources in a cost effective manner and it will helps the organization to achieve their ultimate goal of maximizing profits in the future. Therefore, revenue management processes of an organization needs to be managed in an effective manner, in-order to manage the demand levels of an organization as it directly affects the demand levels of the company.

Turkka Heinonan (2009), states that sales and operations planning is a formalized monthly or quarterly process which integrates functional views of an organization into single and shared plan that ultimately should drive strategy implementation. The key point here is that it incorporates several if not all functions of the company (marketing, sales, production, procurement, human resources, finance and etc.) and aims at creating a common plan that everybody understands and agrees with. If functions would develop their plans individually, without cross functional interaction, production would not be able to prepare for upcoming marketing campaigns that marketing department might be planning. It is clear that planning in silos could result in many discrepancies within the company.

According to many economists, the term oligopoly is derived from two Greek words. Oleg’s and ‘Pollen’. Oleg’s means a few and Pollen means to sell thus. Oligopoly is said to prevail when there are a small amount of firms or sellers in the market producing and selling a product. Oligopoly is often referred to as "competition among the minority". In brief oligopoly is a kind of imperfect market where there are a small number of firms in the market, producing either homogeneous product or producing product which are close but not perfect substitutes of each other. Usually oligopoly is understood to prevail when the numbers of sellers of a product are two to ten. The characteristics of an Oligopoly market are, Interdependence, Higher level of advertising and selling costs, Group behaviors, Indeterminateness of demand curve, Price rigidity and etc.

Venky Ramesh (2009), states that consumer packaged goods manufacturers can manage demand variability by incorporating the voices of the customer, reason and caution in to the demand planning process. He explained demand variability as, "range of values for demand, which is variable based on effort in marketing or promotions, seasonality, holidays, special events and other extrinsic factors." He also mentioned that demand variability is measured through variability of the historical demand.

Consumer packaged goods manufacturers manufacture products based on forecast and stocks levels at their distribution centers (DC). This ensures that when customer order comes in, the products are available for shipment from DC inventory. Most of the retailers are placing orders with increasingly shrinking lead times (24-72 hours or lesser). This gives manufacturers very little to sense any change in forecast or to respond appropriately within planned cost and promised service levels. In order to achieve high service levels in the face of changing demand, it is crucial for manufacturers to undertake initiatives to reduce uncertainty and variability in demand.

Addressing variability within supply chains is important because of its negative impact on firm performance (due to direct costs and opportunity costs) and its potential amplification within the firm and across firms (Germain et al., 2008). An empirical study of more than 900 manufacturing companies in the UK show that companies which are doing particularly well have lower process variability, high schedule stability and more reliable deliveries by suppliers (Mapes et al., 2000). Similar results were found by Field et al. (2006) analyzing financial services processes. According to Hopp and Spearman (2007) variability always deteriorates the performance of a system, as it leads to a mismatch of production (supply) and demand. To correct this misalignment additional (excess) resources are necessary. Generally, there are three types of excess resources, called buffers (Anupindi et al., 2006; Hopp and Spearman, 2007):

To maintain customer service in presence of variability a firm can . . .

. . . hold additional stock (=safety inventory) of raw material, components and finished goods. This type of buffer is probably the most common within supply chains (Chopra and Meindl, 2007).

. . . hold additional capacities (=safety capacity). Holding safety capacities meansthat under average demand the firm’s machines are not fully utilized. In case of increased demand (peak demand) this excess capacity can be used to fulfill customer orders still on time.

. . . simply tell its customers delivery times including safety time. For example,if the average delivery time of a particular product is four weeks, the company might communicate a possible delivery time of six weeks. By that a late delivery as compared to an initially confirmed date can be reduced considerably. Clearly, the higher the variability of demand as well as of production and supply, higher the necessary buffer.

Similarly, Lovejoy (1998) states that a company has three generic possibilities to maintain given customer service (fill rate, delivery time) in presence of variability: it can hold safety inventory, hold safety capacity, or reduce variability by using enhanced information. These three strategies constitute the so-called Operations management (OM) triangle, consisting of the inventory point, the capacity point and the information point

Most of the organizations are trying to balance their capacity levels and demand levels. In-order to do that those organizations is engaged in both capacity and demand management. A common practice is to smooth the demand as much as possible and then schedule employees and facilities to meet the smoothed demand. According to a study carried out by AviDechter, he has identified that smoothing demand as much as possible and scheduling staff according to smoothed demand is not an optimal strategy. Because most of the organizations may try to over smooth their demand levels and it will affect/may create discrepancies within the existing operations of the organization. He has also identified some situations where the above strategy appears more likely to be successful are those where the service organization has the power to schedule both its service personnel’s and its customers as well.

According to a research conducted by Murphy Choy and Michelle L.F. Cheong upon "Identification of Demand through Statistical Distribution Modeling for Improved Demand Forecasting", has identified that there are many factors contributing towards the high demand variability. These fluctuations can be attributed to external factors such as changes in trends (rapid change in consumer preference) or events affecting that geographical region (such as major earthquakes or natural disasters). Occasionally, fluctuations may also be due to marketing efforts which has successfully attracted the consumer's interest towards the products. The supply structure in the economy can also affect the nature of the demand for a product.

There are huge amounts of literature dedicated to demand forecasting as well as demand variability management. Most demand forecasting techniques discussed in the existing literature assumes that the demand function is cyclical in nature with trend. The time varying nature of some demand functions also increased the difficulty in establishing the demand function type and the right model to be used. Lumpy demand function also creates a variety of forecasting problems which are difficult to model using common forecasting techniques.

Gerard P. Cachon (1999) has identified five variables that influence the demand variability within a supply chain of an organization. Two are structural; consumer demand variability and the number of retailers. The other three are policy parameters; the retailers’ batch size, retailers’ order interval length and the alignment of the retailers’ order intervals. These variables clearly define factors which affect demand variability within an organization.

Based on the above identified variables, Gerard P. Cachon(1999) has developed a model to identify the effects upon supply chain of an organization by introducing scheduled ordering policies to its retailers. His research studies the supply chain demand variability in a model with one supplier and N retailers that face stochastic demand. Retailers implement scheduled ordering policies: orders occur at fixed intervals and are equal to some multiple of a fixed batch size. His research shows that the supplier’s demand variance declines as retailers’ order interval is lengthened or as their batch size is increased. Lower supplier demand variance can certainly lead to lower inventory at the supplier. His model identifies that reducing supplier demand variance with scheduled ordering policies can also lower total supply chain cost.

The bull-whip effect is the phenomenon of increasing demand variability in the supply chain as one moves from the lowest echelon (the retailer) to the highest echelon (the manufacturer). According to a study conducted by the Gerard P. Cachon, Taylor Randall and Glen M. Schmidt, (2005) they have identified that higher level of bull-whip effect is among wholesalers, but little evidence of the bull-whip effect among retailers and only some with manufacturers. They have also identified that the goods with predictable seasonality have a lower level of bull-whip effect within their supply chain and also price variability of a product have a greater impact up on creating the bull-whip effect in a supply chain.

Lee et al. (1997a; 1997b) also identified the problem frequently encountered in supply chains; called the bull-whip effect: demand variability increases as one move up the supply chain. This unclear information throughout the supply chain can lead to inefficiencies such as: excessive inventory investment, poor customer service, lost revenues, misguided capacity plans, ineffective transportation and missed production schedules (Lee et al., 1997a).

Lee et al. (1997) identify four factors causing the bull-whip effect, the name given to the common observation that demand variance transmits within the supply chain. Those four factors are, synchronized ordering, shortage gaming (retailers inflate their orders to receive a better allocation), demand updating (the supplier is unaware of true retailer demand and so must rationally assume a higher variance), and price fluctuations (retailers purchase more than their short term needs to take advantage of temporary price fluctuations). These four variables will also affect directly/indirectly upon the high demand variability in an organization.

Colleen Crum with George Palamatier (1953) have stated in their book called "Demand Management Best Practices: Process, Principles and Collaboration", that the demand management practices have become an important part of future business organizations. Most of the companies and supply chains are developing whole new models for managing demand. Organizations are using the demand plan to drive their supply and financial plans, which is causing demand plans to be updated monthly. Therefore, in order to capture higher level of sales in future, customers and suppliers are collaborating to communicate demand information with each other.

According to Colleen Crum and George Palamatier (1953), they have identified that presently customers are more demanding and less forgiving of their suppliers. They expect delivery performance, product availability, and responsiveness to continuously improve. For suppliers, it is becoming increasingly more difficult to achieve customers’ performance expectations without an accurate demand forecast and effective demand management. Cost, cash flow and profit pressures do not permit the extensive use of inventory to dampen the effects of an unreliable forecast.

Effective demand management process is an essential part of an organization, as it creates many opportunities and benefits towards the organization by implementing those practices within their day to day operations. More and more organizations have recognized that the all supply chain partners can enjoy financial benefits, when inventory and waste are flushed away from supply chain of an organization. Colleen Crum and George Palamatier (1953) have stated that without mechanisms for forecasting and communicating demand plans, it is extremely difficult to reduce inventories and supply chain costs.

According to the book published by Colleen Crum and George Palamatier (1953) on "Demand Management Best Practices: Process, Principles and Collaboration", they have mentioned that presently many companies, particularly in the consumer goods industry, are implementing demand collaboration as part of their efforts to reduce the amount of capital required to support supply chain. These two authors have recognized that successful collaboration starts with effective internal demand management processes that are integrated with their company’s supply and financial planning processes. Instead of operating as functional silos within an organization, decisions are increasingly based on the impact on the organization as a whole. The objective of integrated business management is twofold; to ensure that the demand, supply and financial plans are synchronized and executed as planned and to ensure that decisions with regard to demand, supply, and products will yield the best financial performance for the company.

The advantages of effective demand management throughout the supply chain have been talked about for many years. An article in a prominent business magazine observed in 1996:

"So far, supply chain partners have cooperated only over the shortterm, via orders. What they need to do is get their overall forecasting and planning systems integrated for a long-term view. If everybodycan agree on a forecast and stick to it, you don’t have to be changing your production schedules back and forth. That’s the way to get better margins."

As pioneers in implementing demand management practices within organizations, Colleen Crum and George Palamatier (1953) have mentioned that effective demand management requires a competence that goes far beyond expert use of statistical forecasting software or communicating demand schedules via the internet or electronic data exchanges. Information technology cannot replace those human qualities so essential to managing demand. True competency in demand management comes from human judgment, integrated business processes operated by knowledgeable people and skillful execution.

When demand variability is not resolved but merely transmitted to the upstream of a supply chain, this order variability can have large upstream cost repercussions. In a make-to-order supply chain, the upstream manufacturer prefers minimal variability in the replenishment orders from the retailer. Balakrishnan et al. (2004) emphasize the opportunities to reduce supply chain costs by reducing upstream demand variability. This has led to the creation of new replenishment rules that are able to generate smooth order patterns, which we call "smoothing replenishment rules". Smoothing is a well known method to reduce variability. A number of production level smoothing rules were developed in the 1950’s and 1960’s (Cf.Magee, 1956; Magee, 1958; Simon, 1952; Vassian, 1955; Deziel and Eilon, 1967). The more recent work on smoothing replenishment can be found in Dejonckheere et al. (2003), Balakrishnan et al. (2004) and Disney et al. (2006).

The manufacturer does benefit from smooth production, but retailers, driven by the goal of reducing inventory (holding and shortage/backlog) costs, prefer to use replenishment policies that chase demand rather than reducing consumer demand variability. Reducing variability in orders may have a negative impact on the retailer’s customer service due to inventory variance increases. Inventory act as a buffer by absorbing increases or decreases in demand while production remains relatively steady (Buffa and Miller, 1979). This leads to a tension between the retailer’s and manufacturer’s preferred order variability.

Shapiro and Byrnes (1992) have examined demand variance in the medical supply industry. They observe that final demand exhibits little fluctuation, but orders from hospitals exhibit dramatic variability. As a remedy, they implemented standing order policies with the hospitals (a fixed amount is shipped on a regular schedule unless the customer specifically requests a different amount). Due to this the hospital required less space for storage, and the supplier’s production efficiency improved. It clearly suggests and proves that by reducing the demand variability faced by suppliers may benefit the supply chain of suppliers as well as customers too.

Lee et al. (1996) and Aviv and Federgruen (1998) consider models in which retailers have fixed order intervals. They have considered how information sharing can improve the performance levels in a supply chain of an organization. Lee et al. (1996), assumes that synchronized ordering and retailer orders are always filled with either by the supplier or an outside source. Hence, the supplier’s actions do not impact the retailers, nor do the retailers’ actions influence the supplier’s demand variance. Aviv and Federgruen (1998) consider both synchronized and balanced alignments. They find that balanced ordering generally has lower costs. They do not consider batch ordering nor do they study the supplier’s demand variability.

Eppen and Schrage (1981) study a two-echelon model in which the supplier receives inventory at fixed intervals. The supplier carries no stock, so all inventory is immediately allocated among the retailers once it arrives at the supplier. Federgruen and Zipkin (1984), Jackson (1988), Jackson and Muckstadt (1989), McGavin et al. (1993), Nahmias and Smith (1994) and Graves (1996) allow shipments to retailers at intermediate times between replenishments to the supplier, thereby allowing the supplier to hold some stock. These researchers assume synchronized ordering (if a shipment can occur to one retailer, then it can occur to any retailer) and unit ordering. The variability of retailer orders has no impact, since the supplier is concerned only with the total amount of inventory needed at the start of each interval. From these studies, it depicts that researchers have identified some solutions to reduce the demand variability by holding stocks, but this will result in an increase in the supply chain costs of an organization (warehousing cost, holding cost).

According to the past studies carried out by many researchers, they clearly indicate that with a deterministic demand an organization faces only a lower level of demand variability, whereas an organization which faces a stochastic demand will be facing a higher level of demand variability as the demand for the organizations’ products are unpredictable.

Robert N. Boute, Stephen M. Disney, Marc R. Lambrecht and Benny Van Houdt (2006) have suggested that they can model a two stage make-to-order supply chain as a production inventory system, where the retailer’s inventory replenishment lead times are endogenously determined by the manufacturer’s production facility. In this framework the choice of the retailer’s replenishment policy determines the arrival process at the manufacturer’s production queue and as such it affects the distribution of the production lead times. They expected that a smooth order pattern gives rise to shorter and less variable lead times due to the laws of factory physics (Hopp and Spearman, 2001).

According to their research paper on "A smoothing replenishment policy with endogenous lead times", they have considered an inventory control policy that is able to dampen the upstream demand variability by generating a smooth order pattern. They have integrated the impact of order decision on the manufacturer’s production system. They have developed a procedure to estimate the lead time distribution given the explicit order pattern generated by their smoothing replenishment rule. Then they focus on the resulting impact of order smoothing on the safety stock requirements to provide a given service level. This particular research article depicts how to maintain a minimum level of safety stock within an organization by reducing the demand variability, in order to reduce the supply chain costs of the organization.

To determine the worth of demand management, Colleen Crum and George Palamatier (1953) in their book called "Demand Management Best Practices: Process, Principles and Collaboration", have looked in to the consequences an organization may face due to an ineffective demand management process. They are, when customers order more products than has been forecasted, product is not available to fulfill demand. It means inadequate customer service, resulting in a delay in sales revenue at best or a loss of sales revenue at worst, when customers order more products or different products than has beenforecasted, the supply organization often must change priorities. Changing priorities usually requires ineffective and inefficient expediting. Thisresults in higher costs and lower margins, which reduces profitability, when customers do not order as much products as forecasted, products are built unnecessarily. That means increased inventory and associated increases in carrying costs, which in turn reduces profitability and restricts cash flow. Frequently, this unnecessary inventory becomes old and obsolete, resulting in inventory write-offs and reduced profitability, when customers do not order as much of one product as forecasted in a capacity-constrained environment, precious capacity may be wasted building the wrong mix of products. When a company builds the wrong product in a tight capacity situation, it cannot build the products that could otherwise be sold. This increases economic costs (opportunity cost increases) and reduces revenue.

There are many benefits/positives due to Demand Management practices, but there are also some negatives/disadvantages an organization may face in short run as well as in the long run due to Demand Management practices. Some of the negatives of reducing demand variability of an organization are customers not willing or dissatisfied to change their buying/purchasing patterns of a particular product, customers may not be willing to accept technologically innovative products or services to be utilized when purchasing a product/service, workers may get scared or they may not have enough knowledge to use technologically innovative products within their operations. (Higher level of resistance from workers) and transporters/third party service providers may get dissatisfied when they have to work according to a schedule or according to a planning model as they cannot carry out their other activities at the same time.

Colleen Crum and George Palamatier (1953) in their book called "Demand Management Best Practices: Process, Principles and Collaboration" have stated that, they have seen many companies significantly improve their financial performance and market position with a robust demand management process that includes; Input from sales, marketing, and brand/productiondepartments, a demand consensus review meeting conducted monthly by sales andmarketing management, communication of the consensus demand plan to the supply organization for synchronization, a process for managing demand uncertainties and forecast inaccuraciesas they become known and etc. This explains the management practices need to be changed in order to implement an effective demand management process within an organization.

Colleen Crum and George Palamatier (1953) have recognized the types of investments required supporting a demand management process to be implemented in an organization and they are, a well-designed and operated process typically requires an hour or two per month of marketing and sales professionals’ time, the investment in a full-time demand manager(s) is needed to developthe demand forecast, propose a demand plan, communicate the consensus plan to the supply and financial organizations, and manage uncertainties in demand with the supply organization, two to three hours per month is required of senior sales and marketing executives for the demand consensus review meeting, an investment in a forecasting tool that ideally integrates with the company’s expectations and increasingly with the customers’ expectations.

According to Colleen Crum and George Palamatier (1953), the investment in a demand management process is not hundreds of thousands of dollars. The consequences of a non-existence or ineffective process in an organization can make losses of million dollars. As they have experienced, when companies do not perform demand management well, they give up capital, profit margin, share holder value, and market position. This explains the negatives of not implementing an effective demand management process within an organization.

Some of the previous studies have mentioned about how production process of a product will get affected, how distribution process of a product will get affected, and etc. due to demand variability and demand management practices. But they have not tried to quantify or tried to identify the type of relationship is there between Demand Variability and Supply Chain activities/costs of an organization.

When reviewing literature and past studies carried out by different economists and logisticians, it clearly shows that they have not specifically identified whether there is any relationship between Demand variability and Supply Chain activities/costs of an organization. From the past studies it depicts that there is a relationship between Demand Variability and Supply Chain activities/costs of an organization.Therefore, in order to quantify and identify the relationship between Demand Variability and Supply Chain activities/costs in the context of a cement manufacturing organization, this research will carry out further analysis on data collected and it will be summarized and presented in the following chapters of the report.