Put an end to long-term forecasting?

Toss aside the conventional wisdom that says detailed, long-term forecasts are essential to balancing demand and supply. Short-term forecasts can produce more accurate results with a lot less work. That's the argument put forth in a new white paper, "Forecast Less and Get Better Results," written by Thomas Wallace and Robert Stahl of the consulting firm Supply Chain Consultants.

"In today's era of lean manufacturing and sales & operations planning (S&OP), it has become more apparent that the approach of a highly detailed, long-term forecast is not necessary," Wallace said in a statement announcing the report's release. "Instead, an aggregate planning tool that only uses detailed analysis for a short-term plan produces more valid results with better indicators of the future."

The authors argue that detailed planning is only needed inside what they call the "Planning Time Fence"—the cumulative lead time for acquiring material and building product, plus a short time allowance for planning and releasing orders. Outside the Planning Time Fence, companies can use aggregate forecasts rather than detailed projections for advance production planning. That's because at that point, it's sufficient to estimate volume (how much to produce) rather than the actual mix (which items to produce).

For most companies, the Planning Time Fence is a period of four to eight weeks into the future; for manufacturers that have adopted lean production methods, however, it can be far shorter—a week or less. Inside the Planning Time Fence, then, it's critical for companies to have a "granular" view so they can make specific stockkeeping units (SKUs) to fill customers' orders. That way companies know which items to produce first, second, or third.

Although companies can use Excel spreadsheets to develop their aggregate forecasts, Wallace and Stahl recommend using software that has been specifically designed for S&OP purposes to undertake the simulations required for the SKU-level of detail that is needed inside the Planning Time Fence.

To download a copy of the report, go to www.supplychain.com.