3 Capturing unconstrained demand (and not sales)
As we discussed in chapter 2, supply chains need to forecast demand and not sales (Objective). Unfortunately, capturing actual unconstrained demand can be incredibly challenging, if not impossible. This chapter focuses on the second step of the demand planning excellence framework: how to collect accurate demand data.
Remember, unconstrained demand is defined as your clients’ initially requested product, quantity, and delivery date (what, how much, when). Demand is not measured as the number of actual sales which are constrained by inventory at hand (or, more generally, by supply availability). In other words, demand is about what your clients want, how much they want, and when they want it. Not what you shipped, how much you shipped, and when you shipped it (or invoiced).
Most companies do not record demand but sales. As long as you have enough inventory on hand, all incoming demand will result in sales. So, tracking sales—and not demand directly—is ok, as long as you do not face any shortage. In our earlier ice cream example, if the kids want chocolate ice cream (demand), and you have some in your freezer (supply), you can sell them (sales).
You will start facing demand collection issues when you’re out of stock.
In this chapter and the following, I will present you with four techniques to collect unconstrained demand in case of shortages: