Managing Products Via Demand Variability And Business Importance

MANAGING PRODUCTS VIA DEMAND VARIABILITY AND BUSINESS IMPORTANCE By Richard Herrin Since every company has production capacity and working capital constraints, they cannot maintain the same flexibility and service levels across the complete product portfolio … forecasters should devote most of their efforts to products that are low in forecastability but high in business importance … forecasts improve if done on an aggregate level. T T he main objective of Sales and Operations Planning (S&OP) is to deliver operating plans that balance supply and demand in such a way that production assets are efficiently utilized, customer service targets are met or exceeded, and working capital requirements are minimized. For optimal results, the organization must quantify uncertainty in forecasted demands. The S&OP process accounts for demand uncertainty by managing a balance among supply flexibility, customer service levels, and inventory. Since almost all companies have production capacity and working capital constraints, they cannot maintain the same flexibility and service levels across the complete portfolio of products. Therefore, the S&OP must use segmentation strategies. ...