I was recently in conversation with someone who’s company was struggling with lumpy demand, and he asked the question ‘what is the best system for demand management?’. Well, the answer depends on what exactly he’s looking for. This may mean taking a step back to understand why demand is so lumpy and thus, what are the capabilities that would help.
Here are some points for consideration: Perhaps a statistical forecasting package that could produce a more accurate forecast based on historical demand patterns is enough. I would suspect otherwise though. With things changing so fast, historical demand alone is an unreliable predictor of the future. Would aggregation of multiple demand inputs take out some of the bumps? If so, then a collaborative demand planning system could be considered.
This system would capture various inputs, (such as sales projections, marketing projections, management judgement, and possibly a statistical forecast) to develop a single collaborative forecast that would provide a more insightful view of the demand picture. But here’s the catch, in today’s volatile marketplace, your plan will never be 100% accurate. While you might be able to reduce forecasting error, better planning isn’t going to reduce demand volatility. So if you can’t accurately plan demand, then you need to respond to it. That requires you to:
- Detect changes in real-time between the actual demand and your forecast,
- Change your supply plans in response to those changes, and
- Revise your forecast when appropriate.
But is this type of supply chain response agility enough? Is improving customer service levels while reducing inventory risk in the face of volatility an urgent need? If so, having the following capabilities can have significant impact on your performance:
- Determine target inventory levels and resulting replenishment plans in order to handle the “lumpy” demand.
- Detect when your inventory at various locations is in excess of current needs, especially if there is a shortage in that part in another location.
- Link replenishment to satisfy demand with your supply side planning to determine viability of potential changes.
- And when your supply simply can’t satisfy the demand fast enough, allocate the supply to particular orders or distribution channels, possibly based on a combination of fair share, equal share, and priority schemes.
That leaves just one more question: What types of users do you expect, what actions and decisions do you expect them to take, and how do you expect people to interact with the demand management system? In answering some of these questions, one might find that what they thought they needed would only cover some of the total demand management picture. So, it comes down “what are you really looking for?”