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How should you handle the noise in demand signals?
Demand signals coming from the market on a continuous basis carry some amount of noise with them. Supply chain teams often get confused between the noise and a true demand shift in the market. How should we handle it?
If you have implemented a Demand Driven Supply Chain, market demand at the granular level becomes the primary trigger for all the supply actions. The supply chain design requires specific inventory buffers at certain strategic places, which act as shock absorbers to filter out the noise in demand signals. The size of these buffers depends on the extent of noise.
The second element of inventory buffers is meant to ensure stock availability during the replenishment lead time. The size of these buffers depends on the strength of the demand signal and the RLT. If the demand is getting stronger in a geography, this buffer should increase and vice versa. If certain demand drivers are planned, and the signal is expected to get stronger, this buffer should be increased in advance.
Providing two separate inventory buffers in the supply chain helps in handling both the demand signal as well as the demand noise effectively.