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FAQ - How do you handle unforecast orders (abnormal demand) in an MRPII or ERP environment?

If you are in a business where you need to be able to respond to "abnormal demand" i.e. orders that were not forecast (which means nearly every business), the commercial departments must argue the case for safety stock or safety capacity. If there is no safety stock you should never promise abnormal demand using material planned to cover forecast orders unless the commercial side of the business is prepared to reduce the residual forecast by the same quantity. With no safety stock, the operational side of the business must do the best they can to meet abnormal demand but the lead time would be at least the cumulative lead time depending on the manufacturing capacity in excess of forecast orders.

The commercial department can use any safety stock to cover abnormal demand but the replenishment time for safety stock would be at least the cumulative lead time for the product.

The encouragement for sales / marketing to forecast is to reduce the incidence of abnormal demand.

The above process is an essential part of the demand management functionality of master scheduling. Demand management is a customer service tool but is rarely taught to commercial people. If you have a planning system implemented but are not promising forecast orders using "available to promise" and consuming forecast as orders are received, you are in urgent need of education in the Business Excellence principles. If any member of the commercial departments does not want to get involved in making delivery promises except with a fixed lead time or does not want to set safety stock levels based on the reliability of their forecast, they too need education!

 

Jargon Warning - If you are not familiar with any of the terms used above, you can look them up in the free Jargon Buster on this site or, for more details, purchase the book "Business Excellence". Business Excellence is available in e-book format in addition to the paperback and also as a component of the ERP Class "A" toolkit which you can download.