I’m working in a procurement department. I have an interest in learning demand planning, an area in which I have some doubts.
1 – What is consistent upward and downward bias. Where do we use these?
2 – What is constrained and unconstrained demand data? What are the benefits of each?
1 – Upward or downward bias is caused by the optimistic or pessimistic attitude of a forecaster. An optimistic attitude causes an upward bias by using optimistic assumptions in building a model which may be, for example, the economy is expected to grow in the next period at a healthy rate, a competitor is unlikely to respond to our promotional efforts, distribution and velocity of a product are expected to increase, and so on. And/or he or she has tendency to intuitively raise the forecast numbers. A pessimistic attitude does just the opposite. In new product forecasting, there is a tendency towards over-forecasting because the sponsors of forecasting are generally overly enthusiastic about the product.
2 – In constrained demand, demand is adjusted by applying constraints such as production capacity and material shortage. If you receive an order of 100 units, but, for one reason or other, you can only deliver 70 units, then the constrained demand is 70 units. The unconstrained demand is 100 units—the number of orders you receive irrespective of whether or not they can be fulfilled.
Dr. Chaman Jain,
St. John’s University