Demand Management
If one looks over the horizon, there comes a point where you need to manage demand, rather than plan it. This point is the ‘cumulative lead time’ for a product. The cumulative lead time is the sum of the longest lead time from acquisition of raw material through to the delivery of the product.
When a company is inside this ‘time fence’ capacity and materials are fixed. Hence the company typically has to choose between one product or another, or, one customer or another. Additional supply can only be sourced beyond the cumulative lead time.
Suppose the cumulative lead time for a product is 12 weeks. All demand inside this lead time (whether actual orders or forecast) is reserved for orders and those people who have forecast their demand.
Any unforecast demand should be promised in week 13 and beyond (depending on availability of capacity and raw materials). This principle would be easy to apply if it were not for the fact that some very big companies want the product and they want it now!
So an effective demand management process requires a way of identifying abnormal or unforecast demand, and a policy of how to treat customers. If you are travelling on a plane, and you find that they are overbooked, you will soon find out why there are gold, silver and ordinary grade customers!