Exploiting information sharing, stock management and capacity oversizing in the management of lumpy demand

The aim of this paper is to present a new approach to the management of uncertain lumpy demand. After providing a comprehensive review of the related literature, a new model is introduced, with the objective of improving the firm's ability to cope with lumpy orders. Its innovative principle relies on the exploitation of the information collected by the Sales Department during the negotiation process; such information helps to minimize the impact of the lumpy orders, thus reducing the need for oversized production capacity and/or working capital. An analytical model is presented to solve the trade-off between anticipating the production as soon as the order negotiation starts (thus risking production with no final order) and waiting until negotiation ends (thus risking a low service level due to the shorter time available to respond to the lumpy order): the right balance is found by keeping the right amount of stocks and of overcapacity. The model described turns out to be simple and easy to implement, since its informative needs consist of data usually available within the company, although often not exploited.