Are 2 Demand Streams Better Than 1?

Do you have one set of numbers or one demand stream feeding your S&OP family? If you answered yes, then you are probably in the majority. However, to improve the quality of your demand planning and to get the most out of the “S” in S&OP, you usually have to split your demand plan into multiple demand streams. These demand streams may require different planning approaches and they will typically have different people responsible and accountable for them.

In this article, I am going to cover one of the common reasons to split demand into streams – separating abnormal and normal demand.

You may refer to normal demand as run rate demand, flow demand, regular demand, steady-state demand, MRO demand etc. This type of demand is typically forecasted or planned using historical data with a management adjustment.

Abnormal demand is the spikes in the demand that are driven by large orders. These spikes may be caused by large customer projects, opening of new distribution points in the outbound supply chain or large export orders. This type of demand is typically planned using an opportunity management tool or a CRM system.

Typical forecasting systems use historical data and then apply an algorithm to this data to project future demand. Over the years, a number of different algorithms have been developed and some forecasting tools will actually test multiple algorithms and then select the best one to project future demand.

Some of the tools include filters that remove spikes or abnormal demand out of the historical data. This improves the future projections for the normal demand but it also assumes there will be no spikes in the future. These spikes need to be planned for but historical data is not very useful in this case. We need to track the opportunities and predict timing and win probability.

Splitting the family demand into these two demand streams, and then using the appropriate forecasting method for each may provide the best opportunity for improving the accuracy of your demand plans.

Look at the following historical booking data for a typical S&OP family: