Supply and demand affect planning and control

If planning and control is the process of reconciling demand with supply, then the nature of the decisions taken to plan and control an operation will depend on both the nature of demand and the nature of supply in that operation. In this section, we examine some differences in demand and supply which can affect the way in which operations managers plan and control their activities.

Uncertainty in supply and demand:

Uncertainty makes both planning and control more difficult. Local village carnivals, for example, rarely work to plan. Events take longer than expected, some of the acts scheduled in the programme may be delayed en route, and some traders may not arrive. The event requires a good compare to keep it moving, keep the crowd amused, and in effect control the event. Demand may also be unpredictable. A fast-food outlet inside a shopping centre does not know how many people will arrive, when they will arrive and what they will order. It may be possible to predict certain patterns, such as an increase in demand over the lunch and tea-time periods, but a sudden rainstorm that drives shoppers indoors into the centre could significantly and unpredictably increase demand in the very short term. Conversely, other operations are reasonably predictable, and the need for control is minimal.

Dependent and independent demand:

Some operations can predict demand with more certainty than others. For example, consider an operation providing professional decorating and refurbishment services which has as its customers a number of large hotel chains. Most of these customers plan the refurbishment and decoration of their hotels months or even years in advance. Because of this, the decoration company can itself plan its activities in advance. Its own demand is dependent upon the relatively predictable activities of its customers. By contrast, a small painter and decorator serve the domestic and small business market. Some business also comes from house construction companies, but only when their own painters and decorators are fully occupied.

In this case, demand on the painting and decorating company is relatively unpredictable. To some extent, there is a random element in demand which is virtually independent of any factors obvious to the company. Dependent demand is a demand which is relatively predictable because it is dependent upon some factor which is known. Some operations are subject to independent demand. They will supply demand without having any firm forward visibility of customer orders.

Responding to demand:

Dependent and independent demand concepts are closely related to how the operation chooses to respond to demand. In conditions of dependent demand, an operation will only start the process of producing goods or services when it needs to. Each order triggers the planning and control activities to organize their production. For example, a specialist house builder might only start the process of planning and controlling the construction of a house when requested to do so by the customer. The builder might not even have the resources to start building before the order is received. The material that will be necessary to build the house will be purchased only when the timing and nature of the house are certain. The staff and the construction equipment might also be ‘purchased’ only when the nature of demand is clear. In a similar way, a specialist conference organizer will start planning for an event only when specifically requested to do so by the clients. A venue will be booked, speakers organized, meals arranged and the delegates contacted only when the nature of the service is clear. The planning and control necessary for this kind of operation can be called resource-to-order planning and control.

Source by Benny

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