Managing demand uncertainty through order overplanning

Abstract

Most techniques for managing demand uncertainty require a certain degree of stability in the environment, since they are completely or partially based on the observation of historical data. When applied to a context characterized by irregular and sporadic demand these techniques show poor performances. In fact, in such a case uncertainty management calls for the gathering of information that directly anticipates future requirements. Although contexts with irregular and sporadic demand have received only minor attention in the past, they are currently gaining ever more importance and extending their occurrence. This paper illustrates and discusses a method, called order overplanning, specifically designed to cope with uncertainty in these environments. It consists of an articulate and coherent set of forecasting procedures, planning principles and slack control techniques. From a Master Production Scheduling (MPS) perspective, order overplanning is similar to hedging and option overplanning: gross requirements are larger than expected demand. The major difference is that order overplanning uses two distinct units in the MPS and forecasting procedures: while the MPS unit is an end item or a module, the forecasting unit is a customer order. This makes order overplanning able to exploit early information generated by each customer during its purchasing process, information that otherwise would be lost. This marked advantage comes to the detriment of an increased effort of integration between Sales and Manufacturing, especially for controlling the slack created to handle uncertainty. The paper first infers the principles and procedures of order overplanning by analysing the case study of an Italian telecommunications manufacturer. Then, it discusses the main advantages and disadvantages of this method, in order to identify the main factors affecting its performances and to determine the planning environments where it fits coherently.