Intelligent Demand and S&OP

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"This article was originally published Nov. 1 2013."

President's Note

In this article, I will address some of the issues related to managing intelligent demand in S&OP. Actually, the first issue is defining what intelligent demand is. If you are supplying components to support your customer's manufacturing schedule, this article applies to you. Classic examples are companies supplying automotive assembly plants, white goods assembly plants or any other customer that provides a schedule instead of specific purchase orders.

Managing intelligent demand in S&OP requires some special considerations. What are bookings and backlog in an environment where there are no customer orders and only schedules? In this article, I write about an approach to managing this type of demand in the standard S&OP process. In most cases, S&OP families will have multiple demand streams, each with different characteristics. We need to be able to combine the intelligent demand streams in order to get to "The Story" for the family.

What is intelligent demand?

We have coined the term "intelligent demand" to represent the case where the customer provides us with a rolling schedule rather than individual purchase orders.

Why call it intelligent demand? Instead of forecasting or guessing at the demand, as a supplier we have intelligence about our customers' requirements. Their vendor schedule is directly linked to our shipping plan and, theoretically, we don't need to forecast demand.

The automotive industry pioneered this approach back in the 1980s.They

built EDI linkages between the assembly plants and their tier one suppliers. The plant's vendor schedule became the tier one supplier's demand plan. This approach was a game changer for the industry and has since become a common approach to building the link between two manufacturing plants where one supplies the other.

The customer does not place orders in the intelligent demand environment - they transmit schedules. These schedules will be updated and retransmitted daily or sometimes weekly. Unfortunately, the retransmitted schedule may be significantly different than the previous schedule, leaving the planner at the supplying site to question the validity of the term "intelligent demand".

Intelligent demand is dependent demand - demand that is directly related to the demand for parent products (check the APICS dictionary for a full definition of dependent demand). This case is slightly different, as the demand is not driven through the bill of ma