Since we at ToolsGroup began making a big deal about lumpy demand, a question we hear from time to time is “Just what is lumpy demand?”

Lumpy demand is demand that is intermittent and hard to predict. A commonly accepted threshold for intermittent demand is the point where there is at least a 50% probability of having a time bucket with zero demand. If more than half the time you have no demand for an individual SKU-Location, you have intermittent or lumpy demand.

Some products, like slow moving spare parts, have naturally infrequent and lumpy demand. But many other products have demand that becomes lumpy due to changes in the business and supply chain environment, such as when the demand stream is split into smaller and smaller time buckets. As the demand stream gets split more ways, it usually changes from a relatively smooth flow to variable and erratic. This happens more often than most people think, because of three business trends that are driving the growth of lumpy demand.

The first is product proliferation. Customers have far more choices than ever before. This divides demand into smaller buckets.

The second issue for most companies is that they are replenishing more frequently. Shorter time buckets mean more demand variability. The same SKU may look like a “fast mover” (relatively stable demand) if observed in monthly buckets, but looks like a “slow mover” if observed in weekly buckets, and appears intermittent or lumpy at the daily level.

Third, many manufacturers who used to focus on stocking big regional distribution warehouses are now minimizing out-of-stocks further downstream, often at the end node of demand. As the replenishment planning focus shifts from the primary distribution centers to secondary distribution centers and retail shelves, demand is increasingly disaggregated into smaller demand streams.

Lumpy demand is much more challenging than high volume mainstream business. Demand variability is high and typically skewed. Supply chain noise increases. Demand signals are harder to read. As you would expect, forecasting and inventory management in this environment is more challenging. Supply chain planning gets tougher, and you’ve got a lumpy demand problem on your hands.

Labels: demand stream, intermittent demand, lumpy demand, product proliferation