Quote from Jaguar-APS on 8. 6. 2020, 14:30

During a workshop I have run, one of the workshop participants raised the following issue:

"Our forecast process is not typical of how I assume most companies come up with their demand forecast. We start out with a financial budget, for example they say 'your budget for segment xyz is 7,000 units.' Our initial demand forecast is that number, then as we go through the year I adjusts that number up and down. We are having components problems with one of our businesses, we started out with a budget of 4,000 units for the year. We have been unable to produce a significant number of theses products so our forecast is now down to 2,800. Our customer requested demand in down because we are unable to deliver. I forecast customer demand, not ability to deliver so I don't know how I can marry my forecast to customer demand in metrics if demand is affected by late or no deliveries.

One side note, our business is not the type where customers hedge their orders by over-inflating the quantities because they may know we're having problems delivering."

The process he was describing is not a demand planning process. It looks like a process that forecasts sales quota attainment. The company wants to hit a number by the customer and every month it wants an update on how this will be affected by supply constraints. Constraining the Demand Plan by known supply issues is a part of the Sales and Operations Planning process. However, adjusting and not recording the original forecast as customer demand for future forecast development, will result in misrepresented forecast in terms of real demand in market. The future customer demand will be also missed by not recognizing that the past performance is not what customers wanted, but simply, what the company was able to ship.

This typically happens if the company is heavily supply constrained and/or when the forecasting group is reporting into the sales function. There needs to be a management mind set change in viewing demand planning and Sales and Operations Planning to roll out a true demand forecasting process.

The company does not have a true view of demand or never had a true view of market demand and that is what is causing the supply constraints in the first place. There is a need to educate top players in management about the differences between demand and supply and the need to have a distinct view of both.