4.1. Managing demand – traditional model

In order to manage planning, production and delivery, any properly run business has to be able to balance orders for its products and services (i.e. demand) with its ability to produce them in terms of resource and scheduling constraints (i.e. supply). Otherwise it might produce too little of what is required, too much of what is not required, or deliver late, or have problems with product quality or customer satisfaction. Even non-profit organizations, who also have a 'market' to serve and a finite number of employees who don't work for free, are subject to the same constraints.

The average IT department, though not a business from a P&L perspective (the exceptional IT profit centre notwithstanding), has a resource base comprising highly paid specialists, produces highly complex products and services, and has an annual budget of anywhere from 2–10% of annual revenue. Yet it does a very poor job of managing – when managing at all – basic supply and demand. It generally has very little understanding of its demand and supply chains, and would have a hard time being able to answer fundamental questions like 'What is currently in the pipe?' or 'What do we have to deliver over the next six months?' or 'What is our projected resource utilization for the next quarter?'

It can also end up delivering products which don't correspond to what the customer really wants – or, paradoxically, products which do correspond to what the customer wants, but ...

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