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Consumer demand – deterministic or stochastic?
Market reality tells us that consumer demand is difficult to predict. Whatever models we use, even if these are probabilistic in nature, become outdated pretty soon, as the consumer demand patterns keep shifting.
Why do we still develop our supply chain initiatives assuming a deterministic demand, when the reality is far from it? Is it just to make the working simple? Are we oversimplifying the market reality?
There are umpteen supply chain initiatives, developed by leading companies and experts, which assume deterministic demand patterns and lead us in a wrong direction. Especially when it comes to developing the fundamental supply chain capabilities.
A few common ones are network design, capacity loading, production scheduling, freight optimisation… the list is endless.
Be careful when you develop and implement such initiatives. Ask yourself a simple question… Can we tweak these models on the go if the demand patterns change significantly?