Planning and Preparation: Turning Demand into a Feasible Plan
What you must know
Planning questions test the hierarchy: demand forecasting feeds sales and operations planning (S&OP), which feeds master production scheduling, then material requirements planning, then capacity and distribution planning. Know forecast characteristics - bias versus accuracy, the difference between a forecast and a target, and why forecasts are always wrong but still necessary. Understand safety stock logic: it rises with demand variability, lead-time variability, and target service level, and falls with forecast frequency. Be able to distinguish dependent from independent demand, and reorder point from periodic review.
Traps
Beware "improve the forecast" as a cure-all when the real issue is lead-time variability or a mis-set service target. Questions often present a plan that is feasible in volume but not in capacity - check both. Another trap is confusing a plan (aggregate, longer horizon) with a schedule (execution-level, short horizon). Also watch for S&OP described as purely a demand meeting; it is a cross-functional balancing process with a single reconciled plan and financial alignment.
Worked example
Daily demand averages 200 units with a standard deviation of 40; lead time is 5 days, stable. For roughly 95% service (z ≈ 1.65), safety stock = z × σ × √LT = 1.65 × 40 × √5 ≈ 148 units. Reorder point = (200 × 5) + 148 = 1,148 units. Rule of thumb: safety stock scales with the square root of lead time, so halving lead time cuts buffer by about 30%, not 50%.