Demand Streams and Segmentation in Sales and Operations Planning (S&OP)

One key element of demand planning is how you segment and manage demand streams. The mistake many companies make is trying to lump all demand into a single forecast. That creates noise, confusion, and ultimately poor accuracy. Instead, effective demand planning requires segmentation.

Demand Streams vs. Families

First, we separate demand streams from families.

Families are supply-based categories. They are defined by what you make or buy, and they’re grounded in your constraints.

Demand streams are customer-facing. They represent how the market sees you.

By creating this separation, you can clearly see customer demand on one side and your ability to supply on the other. That clarity allows you to plan more effectively.

Segmentation in Sales and Operations Planning

From there, segmentation gives you three major benefits.

1. You can separate abnormal demand like major projects from regular flow demand, such as repeat purchases or ongoing contracts. These behave very differently and need to be forecasted differently.

2. Segmentation lets you apply the right forecasting methods to each stream. High-volume, steady demand might use statistical forecasting. Project-based demand might require a more collaborative approach. You don’t need one universal method, you need the right method for each type of demand.

3. Segmentation allows you to assign accountability. Each demand stream should have a clear owner who is responsible for the quality of that forecast. That accountability is what drives discipline and ensures forecasts aren’t just abstract numbers, but commitments that people manage and stand behind.

Now, people often ask: “Shouldn’t we just aim for the most accurate forecast possible?” 

Here’s the truth: accuracy has limits. Chasing a perfect forecast is like trying to predict exactly how many raindrops will fall tomorrow. You’ll never get it right and you don’t need to. 

Instead, use buffers: 

• Inventory

• Lead times 

• Backlog

These act as shock absorbers to protect the business when demand shifts unexpectedly. To manage performance, we use tolerance bands. Think of these as the acceptable range for forecast accuracy. As long as you’re within that band, you’re in control. If you drift outside, it’s a signal to investigate not to punish, but to understand what’s driving the change and how to adjust.

Demand streams are not about adding complexity. They’re about bringing clarity. By mirroring your business reality, segmenting demand appropriately, and holding people accountable, you turn demand planning into a disciplined process. That discipline improves forecast reliability, strengthens accountability, and ensures your business is prepared to respond to both normal and unexpected changes in the market.

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At DBM Systems, our consultants have over 20 years of experience providing S&OP leadership to businesses worldwide. We equip teams with coaching and the tools to quickly start and sustainably run an effective S&OP process. Learn about our process and unlock the power of S&OP in your organization.