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Demand is always stochastic.
Many companies have developed their entire demand and supply planning processes on the assumption that demand is deterministic. Their elaborate LRP, AOP, S&OP processes work on this tacit assumption. They take huge efforts in finding out what the deterministic demand will be, often resorting to the consensus mechanism. Does it help?
Anecdotal evidence suggests that these companies continue to struggle with stockouts and inventory pileups. Is it due to the incorrect assumption or are they missing something else?
Once we do away with the assumption of deterministic demand, we start working on developing other capabilities to cope up with demand variability. These include maintaining a hawk’s eye on actual demand (Demand Sensing), maintaining stocks at strategic places to supply at a short notice (Inventory Buffers), modifying supply plans on the go (Responsiveness) and ensuring that these frequent changes don’t cause stress on the backend functions (Flexibility).
However, the message is simple. These capabilities will be developed only when we challenge the assumption of deterministic demand.
Have you done that in your organisation?