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“First do no harm” to true demand

“First do no harm” is an important tenet of medical doctors. While supply chain management is perhaps not as noble a profession as medicine, we do have a noble goal. Our goal (and real purpose in life) is to optimally match supply and demand over time. This is what I’ve termed optimized demand management. Paraphrasing the medical tenet, we should “first do no harm to true customer demand.”

By ·

“First do no harm” is an important tenet of medical doctors. While supply chain management is perhaps not as noble a profession as medicine, we do have a noble goal. Our goal (and real purpose in life) is to optimally match supply and demand over time. This is what I’ve termed optimized demand management. Paraphrasing the medical tenet, we should “first do no harm to true customer demand.”

Demand forecasts that support sales and operations planning (S&OP) processes need to represent estimates of future unconstrained demand—which reflects undistorted demand in terms of what, how much, and when customers really want their orders filled. In essence it reflects the fulfilled demand that would result if a company (unrealistically) had immediate and infinite supply available at all times. Based on unconstrained demand forecasts, the S&OP team plans supply; and once done “constrained” demand forecasts are one of the key outputs of the S&OP process.

I recall a comment made by the late Dick Clark during a discussion about the difference between constrained and unconstrained forecasts. A consummate industrial forecaster, Dick was P&G’s forecasting guru for several decades before he passed away some years ago. He doubted that “true” unconstrained demand existed. Until recently, I never understood what he meant by that because I viewed unconstrained demand as demand devoid of impacts due to supply shortages (e.g., that cause stock-outs and backorders).

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“First do no harm” is an important tenet of medical doctors. While supply chain management is perhaps not as noble a profession as medicine, we do have a noble goal. Our goal (and real purpose in life) is to optimally match supply and demand over time. This is what I’ve termed optimized demand management. Paraphrasing the medical tenet, we should “first do no harm to true customer demand.”

Demand forecasts that support sales and operations planning (S&OP) processes need to represent estimates of future unconstrained demand—which reflects undistorted demand in terms of what, how much, and when customers really want their orders filled. In essence it reflects the fulfilled demand that would result if a company (unrealistically) had immediate and infinite supply available at all times. Based on unconstrained demand forecasts, the S&OP team plans supply; and once done “constrained” demand forecasts are one of the key outputs of the S&OP process.

I recall a comment made by the late Dick Clark during a discussion about the difference between constrained and unconstrained forecasts. A consummate industrial forecaster, Dick was P&G’s forecasting guru for several decades before he passed away some years ago. He doubted that “true” unconstrained demand existed. Until recently, I never understood what he meant by that because I viewed unconstrained demand as demand devoid of impacts due to supply shortages (e.g., that cause stock-outs and backorders).

SUBSCRIBERS: Click here to download PDF of the full article.

About the Author

Larry Lapide
Dr. Lapide is a lecturer at the University of Massachusetts’ Boston Campus and is an MIT Research Affiliate. He received the inaugural Lifetime Achievement in Business Forecasting & Planning Award from the Institute of Business Forecasting & Planning. Dr. Lapide can be reached at: [email protected]

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Third Party Risk: Too Close for Comfort
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