Many companies these days are dealing with lumpy demand.

What’s causing the problem? Once source is product proliferation. Customers have far more choices than ever before. This divides demand into smaller and smaller buckets.

But the real 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.

Why is lumpy demand a problem for Supply Chain Managers? Lumpy demand is much more challenging than high volume mainstream business. Demand becomes more unpredictable. Supply chain noise increases. Demand signals are harder to read. As you would expect, forecasting and inventory management in this environment is more challenging, especially since traditional inventory management systems weren’t designed for lumpy demand.

As Lora Cecere of AMR Research concludes in “Of Long Tails and Supply Chains” (January 2008),

“Bottom line, in this scenario, traditional inventory techniques — safety stock logic based on normal demand distribution — just don’t work.”

To learn more about the problem and what you can do to solve it, click here for a copy of our whitepaper “Mastering Lumpy Demand”.