Order overplanning with uncertain lumpy demand: a simplified theory

Order overplanning is an uncertainty management method practised by companies that face a very sporadic and irregular demand. It applies a basic buffering principle: to anticipate future demand by collecting early information on customer requirements. Its peculiarity is that, because of lumpiness of demand, this early information is captured by focusing on the purchasing process of each single customer. Order overplanning therefore uses two distinct units in the Master Production Scheduling (MPS) and forecasting procedures: while the MPS unit is an end item or a module, the forecasting unit is a single customer order. Up to now, order overplanning has been implemented by resorting to empirical rules and intuition. This paper investigates its demand management mechanisms by means of quantitative analyses with the aim of taking a first step towards a theory of order overplanning. In particular. the purpose is to assess its ability to cope with lumpiness, understand how its performance may be controlled and balanced, and identify its domain of applicability. Since the quantitative analyses are a first attempt to develop a theory of order overplanning, they take advantage of some simplifying hypotheses. Their implications for the robustness of the models, as well as directions for future research are also discussed.