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Forecast accuracy in demand forecastingto support short term demand planning |
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Short term demand forecastingShort term forecasting is carried out to help maximise the profit obtained from existing resources. At one extreme the products may have a very short shelf life, for example daily newspapers or sandwiches. So a daily forecast may be necessary. In other businesses a weekly or monthly forecast may be adequate. The forecast horizon used in short term forecasting should at least cover supply lead times as a minimum, but commonly extends up to a year forward. If stock is held in the supply chain, good short term forecast accuracy is paramount, as it is a major factor in the calculation of the required amount of safety stock that is needed for a given level of customer service. Methods for short term demand forecastingThe fact that short term forecasting is carried out at a very detailed level tends to make sophisticated methods such as causal modelling difficult to apply. And complicated curve fitting is unnecessary. It is practical to assume that external factors such as the prevailing competitive structure and economic background will stay relatively constant. The emphasis is on tracking short term changes in demand. Simple time series projection methods such as moving averages and exponential smoothing are most commonly used, together with commercial judgement. Finding the best way of dealing with seasonality is always important Forecast accuracy and commercial judgementTo maximise forecast accuracy it is always valid to apply market intelligence to the forecast to take account of known events. The process of obtaining sales force collaboration in the sales forecasting and demand planning process needs to be carefully resolved, with appropriate management of multiple versions of the forecast leading to a final 'one forecast' solution for the whole business.
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