Why are hierarchies important in the demand planning process?

Hierarchies play a crucial role in the demand planning process because they allow organizations to structure their data in a way that reflects the various customer combinations and relationships within the market. By organizing data into hierarchies, planners can build and analyze demand forecasts based on different levels of aggregation, such as products, regions, or customer segments. This structured approach enables planners to identify patterns, trends, and variances more effectively.

When plans are built according to different customer combinations, it allows for targeted marketing strategies and better inventory management tailored to specific segments of the customer base. This is essential for making informed decisions that impact production, distribution, and ultimately, customer satisfaction.

Such hierarchical arrangements also facilitate scenario analysis, allowing organizations to simulate the effects of changes in demand across different combinations of variables, leading to more accurate and responsive planning processes.