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2013/09/27

Forecasting Fundamentals: Aggregate Forecasting

Forecasting Fundamentals

By Gary Shaw, Senior Supply Chain Consultant

Demand Planning is an art and a science.  The ‘art’ is the ability for a Demand Planner to understand the business, build relationships, share information and generally have a ‘finger on the pulse’ of the company.  The ‘science’ is the ability to generate a good, accurate forecast for a large number of products and customers that can be used by the factory and/or planning team to drive the production and purchasing plan.

One ‘science’ question that needs to be answered by the Demand Planner is “what level shall I forecast at?” Common wisdom is that forecasts should be managed at a group or ‘aggregate’ level.  This not only reduces the number of records to manage, but better use is made of sparse or erratic data and a better level of trend and seasonality will be achieved if the correct products are grouped together.

Aggregate Forecasting GS

Getting a good aggregate forecast is only half the issue though.  Tell the factory planners or purchasing department that you’ve got a great aggregate forecast and you won’t be given a pat on the back.  The aggregate forecast has to be split back to a meaningful level, typically by product or product-customer, so it can be used by production and the purchasing department.

So, how do you manage the split from the aggregate to the lower level?  Typically this process involves a dedicated forecasting tool and the key here is that the software should do the hard work.  There are three key elements in choosing the right software for this type of ‘splitting’ operation:

1. Adaptable

The software should provide a range of options for how the split to lower level is managed.  For example, allowing you to:

– Take the seasonality of the aggregate level

– Split automatically based on the history of each of the products in the group

– Allow the use of different splitting methods for different product groups or customers

2. Easy to configure

Managing and applying the splitting ‘rules’ on a day to day basis is completely in control of the user.  There is no need to bring in the software vendor or consulting firm just to set up or apply a different type of splitting operation.

3. Sophisticated

With a splitting process there are always exceptions to be managed,  If the forecast for one product at the lower level isn’t quite right but everything else is OK, the software should be capable of allowing an override to be made to that record.  Also it should consider the impact on the other products in the group as a result of making this override.

FuturMaster Demand Planning offers all of these functionalities and more, allowing you to truly manage the forecast and work on improving it rather than being side tracked by managing huge, complex spreadsheets and checking the numbers add up.

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