“First do no harm” to true demand

This is an excerpt of the original article. It was written for the March-April 2016 edition of Supply Chain Management Review. The full article is available to current subscribers.

March-April 2016

When I visit my millennial-aged daughter in Chicago, I’m amazed at the number of packages dropped off by UPS, FedEx and the USPS at her three-unit building on a daily basis. It’s as if she and her neighbors are single-handedly keeping Amazon in business. All those drop-offs got me to wondering: Does any of this make sense if you think about a carbon footprint? Rather than deliver millions of packages to one address at a time every day, wouldn’t it be more sustainable if we all just drove to the mall to do our shopping? After all, doesn’t research indicate that a signi cant percentage of consumers, especially millennial consumers like my…

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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).

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