Addressing Demand Variability

As the newsvendor problem demonstrates, knowledge of demand variability—ideally, knowledge of the entire demand distribution—is critical to making good S&OP decisions. Without it, you cannot estimate the marginal value of procuring and holding additional supply. And yet little attention is usually given to understanding demand variability. When asked how they measure demand variability, most supply chain directors say they measure forecast error. But forecast error is not the same as demand variability. The distinction is not just theoretical. Forecast error says just as much about your ability to forecast as it does about the inherent variability of demand. Demand variability is the true fluctuation in demand unadulterated ...

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