In early customer engagements we often have great philosophical discussions with the customer on how best to approach the customer's planning challenges.
Imagine this customer already has a workable approach for handling his planning challenge on the short term. When discussing the customer's mid or long term planning challenges it may look appealing to simply extrapolate the short term approach to the longer term approach.
If it works accurately, efficiently and understandably on the short term, why wouldn't it work in the longer term, right?
The topic which is overlooked here is the notion of inherent uncertainty.
Inherent uncertainty is the confidence level of the available information for either demand or supply.
It is in the nature of all industries we support that there is inherent uncertainty on various areas of the business.
Examples of different levels of uncertainty:
- In customer demand: anonymous forecast based on historical patterns, versus committed customer orders.
- In supplier capacity: long term average capacity forecast, versus next month’s agreed capacity
- Workforce planning: aggregate workforce availability versus next week’s employee roster
A recurring pattern is that information further in the future has more uncertainty than information which is closer by. The exact differences can differ per industry and per company.
Uncertainty usually goes hand-in-hand with risk trade-offs. On the near-term, maybe there is lower uncertainty and therefore less relevance of risk. In the first example above the planner will inevitably end up having to make tradeoffs. Like producing a lot to ensure all demand is met and risk a lot of waste, or produce very little to ensure no waste and risk loss of sales.
Uncertainty means making decisions without perfect information, but it doesn’t mean that all decisions are equally good. You can still be smart about it and manage your risk/uncertainty depending on how much information you have.
The impact on the choice of planning solution is huge. This is one of the main reasons why a company may need conceptually different solutions for their short term and longer term horizons.
More on that in a next post!
