Once we have the demand plan or the forecast and also the supply plan, the next key activity to do is to constrain the forecasts or constrain the demand plan. As you recall, the demand plan that was created before prior to this exercise is an unconstrained plan or unconstrained forecast. This is where the plan or the business units, they are putting together the "wish list", based on historical demand. Based on what the histories has indicated, this is a forecast for the future. The same time next year, for the same time next season, and then so forth, without taking into consideration of any constraints that may be in place currently. Then once you have that and also once the supply planning was able to do their due diligence, look at the available capacities, available material for the future months or the future weeks, then it's time to come together and constrain the plan. The constrained demand plan or constrained forecast, it is just what the name indicates. You put the unconstrained forecast against the supply. Then based on that, you come up with another version of the demand plan which is constrained. Constrained based on the supply, the available resource, and the material. It depends on the organization, so this view shows just a typical the key items that you will see, typically see on a system or on your spreadsheet, or some system that the organization uses. It's not all inclusive, but it has some of the key elements. The first thing you will have to know is the demand plan, and this is the unconstrained forecast. For the future, in this example, for the future eight months, either I call for demand in these various months, these quantities. Then you also know the available balance, you have your inventory. What's in your inventory projected going forward and what is the supply plan based on their due diligence, what will be available in the coming months. Then there you can have the constrained demand plan. For example, let's say we start out our exercise with a surplus of 260 units, so this is in month zero. Even before we started the business or before the analysis, we have 260 units left from prior. Then in Month 1, I'm calling for 150 units. Demand plan says I need 150 units in Month 1. Then the net of that, the projected available balance of inventory after that will be to 260 minus 150, equals 110. Then my demand plan, constrained demand plan, I have enough material and capacity to fulfill this request. I can meet this request and then my constrained demand plan for this month is 150. Going forward, Month 2, I have no demand, I have no requirements. There are no supply. Then my projected available balance is 110, is still the same. Coming to Month 3, I'm calling for 70 units, and since I have 110 left from prior, so I can fulfill this request. So my constrained demand can be 70. Then that will get me a balance of 40 leftover from this exercise by having to fulfill this demand, so I have 40 leftover. In Month 4, I have nothing, there's no requirement, so I just continue to carry this inventory. Until Month 5, my demand plan, the unconstrained demand plan costs 475, and I only have 40 left, so I need to look at, are there any supply coming? In the previous, I don't need to care so much and it's good that I don't have any supply coming, because it's good to minimize inventory. Just in time concept that inventory is money, it's opportunity cost that I'm putting money in a warehouse versus I can put the money, the same amount of money in the bank to earn a little bit interest. Thank goodness, I can supply 200. The supply plan did a good job. They did the due diligence and discovered that I will have a shortfall in Month 5, so they are able to supply 200. I can meet this demand plan, so I can say my constrained demand or forecast for that month is 175. Then coming to Month 6, after I net out the requirements, I will have 65 left. This is based on, I can supply, my supply, total supply is actually 240. Two-forty in my inventory, 200 will arrive at the month, and then 240 minus 175 will give me 65. I have 65 units left in my inventory by Month 6. Moving forward, so in Month 7, the unconstrained plan or forecast calls for 90 units. Supply plan that month can supply 20, and then I have 65 leftover from prior period, prior month. But that only gives me 85, so some five short. Since I'm five short here, the constrained plan at this point can only be 85. I'm not able to meet the 90 that's projected or that's forecasted, and based on a more realistic view, due diligence on the supply side, I can only produce 85 for Month 7. I can only meet 85 out of 90, so my constraint demand plan is 85. Now moving forward to Month 8, my unconstrained demand plan calls for 60. Here in this month, my supply plan can provide 80 units, so I'm actually okay. I can produce the 60 units that's called for in Month 8, and so therefore, my constrained demand plan is 60. Then you just continue to carry forward, depends on how many periods that you are looking at in your forecasting or demand planning, what is constraint forecast exercise, you can continue with the same logic into the future periods.
