Transportation Economics All Three Areas of Demand

Transportation Economics

All three areas of demand management, production planning and logistics planning are integral to any enterprise operating its value chain efficiently and profitably. The catalyst that keeps any value chain continually operating and improving begins with understanding the aggregated demand forecasts for specific products, in addition to understanding the nuanced nature of customer's changing requirements and needs (Rexhausen, Pibernik, Kaiser, 2012). Demand management is crucial for translating forecasts and sales history into a plan that can guide production planning, while also orchestrating with logistics planning as well (Wang, Liu, 2013). Each of these three years fulfills a very unique role in triangulating the performance of a company's value chain to attain profitability and market share growth over time.

Demand Management, Production Planning And Logistics Planning

There are many aspects of demand management that vary by the type of value chain a given company has. For many companies that compete in highly cyclical, price-driven businesses, the Sales & Operations Planning (S&OP) process is essential for synchronizing the sales-driven requirements of each distribution channel, product line and business unit (Croxton, Lambert, Garcia-Dastugue, Rogers, 2002). The S&OP process has also proven to be instrumental in gaining greater insights into how process goods manufacturers can compete effectively over time as well, as forecasts are translated into production planning operations (Croxton, Lambert, Garcia-Dastugue, Rogers, 2002). The S&OP process is also critically important for managing complex supply chains that are designed to support assemble-to-order (ATO), build-to-order (BTO), configure-to-order (CTO) and engineer-to-order (ETO) products that are tailored to customers' specific needs during the production planning process. Using a streamlined S&OP process to determine forecasts by each custom configuration area (ATO, BTO, CTO & ETO), manufacturers can more effectively optimize the gross contribution margin earned with each production strategy (Rexhausen, Pibernik, Kaiser, 2012). The Dell production model, which joins the S&OP process with production planning for configurable products continues to be replicated across all industries where customer's customization requirements for a given product are configurable during the selling process (Croxton, Lambert, Garcia-Dastugue, Rogers, 2002). The greater the variation in the production planning process, the more precise the S&OP process to support aggregated views of customer demand while keeping supply chain and logistics systems synchronized to the demand forecasts. All of these factors have a direct, significant financial effect on transportation economics (Wang, Liu, 2013).