In this session, we will talk about demand management

and specifically, the customer order process.

The process in a company related to administration
of demand for the company's products
are of two types, the forecast process and the customer order
process.
The customer order process covers the known part
of demand, while the forecast process
covers the part of demand which must be estimated.
The role played by customer orders in relation
to forecasts in gaining information about future demand
depends to what extent the company's products are
delivered directly from stocks or if the products are
assembled or manufactured to order
and the corresponding delivery time.
In this section, we will focus on the customer order process,
while the forecast will be a covered in another section.

As shown in this figure, the customer orders

are related to the master planning process,
but can also be part of the order planning process.
Depending on the industry, orders
can look a bit different.
For example, a customer order can be in a retail store
where the customer entered the store and places order.
Or it can be a company or a private person that are
looking for a unique product.
That means a product made up on their request.
Or it can be a company that buys a repetitive
amount of the products.
And we will look into these different scenarios.

So let us start with looking at how a customer order

process can look like.
A customer order represents a commitment
from a customer to purchase certain quantities
of a company's products at a certain point in time,
even though the quantities and delivery times of such customer
orders may be changed or the order may even be canceled.
In practical terms, customer orders
are still considered as and treated as known information
about future demand.

Working methods applied to the processing of customer orders

vary considerably between different types of company.
However, from the logistics perspective,
we still talk about the general customer order process
with associated activities, irrespective
of the type of company.
One such general customer order process
is illustrated in the figure.
In the first step of the customer order process,
there are two main alternatives, depending
on what the customer demands.
If a standard product is demanded,
the customer's requirements after a simple inquire
may directly result in a customer order to the supplier.
The inquire may, for example, relate to price
and possible delivery times.
If instead it is a question about specific products
that produced the customer order,
the process is more complex and may even
include a request or a quotation with information
about product performance, price, delivery conditions,
and other aspects which defines the supplier's offer.
The activities between a customer and supplier
are also intended to specify and estimate the desired product.
Determining a delivery time is considerably more complicated
in this case.
Some negotiations of prices and delivery conditions
are also common.
For specific products and the customer orders,
there may well be extensive discussions and exchange
of information before a customer order is completed.
When a supplier has received an order,
it is often confirmed by sending an order confirmation
to the customer.
In straightforward cases, this means
that the supplier confirms that he undertakes
to deliver a certain quantity of a certain product
at a certain point in time.
In more complex cases, the order confirmation
may also contain drawings, specifications,
guaranteed performance, and so on for the product
to be supplied.
If the customer order is for standard items in stock,
a picking list is printed out when delivery is to take place
and the stated quantities are picked.
If the customer order refers to products to be manufactured,
the work order is drawn up which is started in time for delivery
to take place as agreed.
Whether products are manufactured or picked
from stocks, they are sent to be packed and dispatched
to the customer.
In most cases, the supplier will send a delivery notice
to the customer at the time of dispatch,
informing him that the delivery is on the way.
In cases where customer orders offer standard products,
the order can be registered directly
in the supplier's ERP system.
At the time of registration, products
are reserved in the quantities and times
stated in their order.
By making these reservations, consideration
may be given to the need to deliver that amount when
conducting material planning.
One Central part of the customer order process
is determining a delivery time for the customer order.
Customers require information about the expected time
for delivery.
And information about demand must include both quantities
to be delivered and the times at which deliveries
will take place.
For standard products, which are delivered directly
from stocks or successively, as they are planned
for production, the delivery time
is determined by calculating the earliest
time at which there are available quantities
to promise for delivery.
Available quantities to deliver means, in this case,
the quantity which at a given point in time,
can be delivered from stocks without negatively impacting
on other customer deliveries.
For example, the fact that there are
a number of items of the product in stock
is not the same as having these items available for delivery.
A number of them may be reserved for another customer.
Calculation of what is available for delivery
is called available to promise, ATP,
and is illustrated by means of an example in this table.
The first row in the table refers
to the total quantities reserved for customer orders on hand.
A reservation is the booking of a certain quantity
for delivery at a later date.
The second row refers to expected inbound deliveries
from ongoing or planned work orders or purchase orders
if it is a purchased product.
These deliveries are assumed to be
available at the beginning of the period.
For example, from this table, we can
see that delivery of 50 units will
be available in the beginning of week three.
And another delivery available the beginning of week six.
In the next row, we can see the estimated stock balance
or projected available balance.
The stock balance is the quantity
that is estimated to be in stock in the end of each period.
Therefore we also have a quantity
for ingoing balance, week zero, which in this case
is 47 pieces.
The stock quantities is calculated
by taking ingoing quantity, plus planned production.
That means if there is any deliveries coming in,
minus reservations.
For example, for week one, ingoing quantity is 47.
We don't have any planned production.
And reservation is 30.
47 minus 30 is equal to 17.
Or for week three, we have ingoing quantity that is 2,
plan production is 50, and reservation is 21.
2 plus 50 minus 21 equal to 31.
So in the end of week three, we plan to have 31 units in stock.
But some of these might already be reserved by a customer.
So let's look on how we can calculate what we can promise
to deliver to our customers.
The fourth and last row show how much that accumulated
remains in stock for possible delivery to a new customer.
Note that in the end of week one,
we have 17 pieces in stock, but they are not
available to promise in week one,
even though there are 17 pieces remaining in stock when
the week is over.
If these 17 pieces were to be delivered to a new customer,
deliveries of a total of 15 pieces promised
to customers in week two would not be possible.
If the company received an inquiry
from a customer regarding the earliest delivery
date for 10 pieces, the answer must be in week three.
For example, let's look on what we can
promise a customer in week one.
When week one starts, we have 47 units in stock.
Of these, we already have promised customers
30 in week one and 15 in week two.
That means of the 47 units in stock,
we have a total reservation of 45 units.
And only two left to promise to new customers.
The calculation here is that we took
ingoing balance minus the reservation of all weeks
until the next delivery.
Let's look at the next delivery, which is in week three.
We have an incoming delivery of 50 units
that are available in the beginning of week three.
Of these we have reservations of 21 units for week three,
12 units for week four, and 7 units for week five.
That means a total of 40 units.
Of the 50 units that are coming in, in week three,
we already have reserved 40 units.
That means 10 left to new customers.
Together with the remaining 2 units
that we are available to promise in week two,
we then have 12 units available to promise in week three.

So if a customer asks, how many items

can you deliver to me in week six, what will you answer?