Forecasting Fundamentals: 4 Keys to Forecasting and Production Scheduling
By: Scott Jessup
Forecasting and production scheduling is part art and part science. What makes forecasting and scheduling so challenging is that needs vary widely from company to company, depending on the organization’s business model, what they’re making and how they make it. Even within a single company there can be different situations and processes that can affect forecasting and production scheduling.
There are a number of criteria that can affect your company’s ability to forecast accurately and reliably including:
- Is demand consistent?
- What factors affect the variables being forecast?
- What’s your supply chain visibility?
- How reliable is your transportation and do you have access to multiple modes?
To be able to reliably forecast production requirements and manufacture products based on forecasting information requires companies to answer those questions first.
Once you have answers, there are essentially four steps or keys to effective forecast management that, properly implemented, can improve forecasting accuracy and reliability as well as simplify production scheduling:
Some manufacturing forecasters joke about the ease of forecasting: “it’s easy – all you have to do is predict the future.” In a way, this is certainly true. After all, forecasting is the process of making predictions of the future based on past and present data and the analysis of trends. Most companies start forecasting but often stop just as they get started because, depending on the product being manufactured, forecasting can get quite complex and require a lot of data input. As a result, some companies are tempted to “wing it” without putting hard-and-fast policies and procedures into place. The result is that production planning personnel don’t know whether to execute against the forecast, negating any potential forecasting benefit right from the start.
- Execute against the forecast
As we just learned, a forecast is useless unless production scheduling is executed against it. By utilizing forecasts and executing production against them, companies begin generating critical data that can be used to analyze and improve future forecasting in a cyclical process of constant improvement.
- Monitor accuracy against the forecast
Forecast accuracy is crucial for streamlining production operations, minimizing costs, and increasing profits. Most manufacturing businesses find it valuable to monitor and evaluate the forecasting process using both individual and aggregated forecast-accuracy metrics. By tracking these metrics over time, you can improve forecasting capabilities as well as drive production process improvement (a principal factor in ERP). Forecast accuracy is so important to the manufacturing process it should be a key performance indicator.
Monitoring forecast accuracy sounds like a great idea, right? It’s surprising how many companies don’t do it for a number of reasons, including data storage issues, inability to agree on metrics, and simple inertia.
- Adjust the forecast
The need and desire to improve forecasting accuracy is fundamental to utilizing an ERP system. By constantly and consistently monitoring forecast accuracy, you are generating information that can help you accomplish three major objectives:
· Determine if you’re using the right forecast models
· Identify the adjustments needed to improve them
· Project any expected deviations from the planned forecast