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Do you know the short-term demand?
Most companies have their supply chain planning and execution processes designed for a deterministic demand scenario. Is it realistic? Do we know the short-term demand? Do we know it at the granular level at which we need to execute supplies? The plain answer is… we don’t. As a result, companies estimate monthly demand, use certain thumb rules to disaggregate it and use it for supply execution.
Considering demand as deterministic is a major reason for the mismatch between supply and demand, leading to stockouts and excess inventory pileups. All we need is a change in the mindset that even short-term demand can’t be assumed as deterministic. It needs to be predicted at the granular level and refreshed frequently as we get more demand data.
Just this single change in mindset leads to questioning several supply chain processes and practices. For example, when the mother warehouse gets new supplies, should you allocate it fully and send it to the customer facing warehouses? In a deterministic demand scenario, you would. In a stochastic demand scenario, you won’t.
Considering demand as stochastic is closer to reality and leads to more agile supply chain policies, processes, and practices.