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The Manufacturing Plan
Part 2 of
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What Do We Forecast?

The need to forecast, as well as the need to maintain the forecast, is determined by why we forecast. Given the importance of favorably influencing the future, we must forecast everything we need to know and to plan the future.

As mentioned earlier, for Manufacturing we must go beyond volume and sales. Some of the other areas are: Production, Demands, Supplies, Costs, Prices, Lead times, etc.

One of the often ignored determinants of what to forecast is where in the product life cycle the product is. As it moves from introduction to growth to maturity to decline, the method of manufacture will also change. Starting with Engineer-to-Order during development and early intro­duction, there is a move to Make-to-Order and then As-semble-to-Order as the growth period is reached. Make-to-Stock is often seen as the appropriate method for a mature product and Assemble-to-Order allows for manufacture from (hopefully) standard sub-assembles during decline. Finally, the product may return to Make-to-Order special customer demands.

Two areas where poor results are common are during introduction and during decline. During introduction, quantitative forecasting techniques often fail to recognize the impact of pipeline fill, and projected demand is over­stated. During decline, an attempt to build "one lastbatch" is often the cause for excess inventory or the cause for customer frustration if under-produced. These are stages of product life cycle which call for qualitative demand forecast methods. That means decisions by appropriate managers.
Forecast Issues—Sales and Operations Plan

The example of the impact of the product life cycle on the quality of the forecast illustrates how key decisions can impact validity of the resulting data and the decisions based on that data.

The three key issues are:
• Product level to forecast
• Horizon to forecast
• Frequency of forecasting Product level to forecast

Is it essential to forecast at the stock keeping unit (SKU) or is it adequate to forecast at the product family level? If the product family requires common resources with only minor differences there is no benefit to detail the forecast at the specific product configuration. These common resources include people, machines, equipment, material, skills, etc.

The selected level must allow for information being accu­rate and manageable for use in the manufacturing plan while still being manageable with available resources.

Horizon to forecast

There is no given horizon which is appropriate for all companies. The two key determining elements are: First, allow for mid to long range resource planning (RRP). Second, is the horizon sufficient to facilitate inventory and/ or capacity adjustments? However, if the aggregate time required to a change is longer than the forecast horizon it may be possible to reduce reaction time rather than in­crease the horizon.

Forecast frequency

The determining factors for forecast frequency are having a significant cycle, data availability, and frequency of programs and promotions. There can be a pre-determined frequency and criteria for triggering an on-demand review of the forecast and the sales and operations plan. Signifi­cant cycles may be determined by response time and/or seasonality of demand and/or supply of resources. Data availability can be affected by external factors such as customer supplied data, economic conditions, even the weather may be a factor, etc. Companies which have special programs, (like dating terms), or run promotions, will find it advisable to adjust frequency of forecasting so that the most recent information is available to be reflected in the manufacturing plan.

Master Production Schedule

The Master Production Schedule (MPS) is the typical interface between the forecast and the manufacturing plan. The handling of the MPS will be determined by the methods used to forecast at the S & OP level. The MPS must be a dis-aggregation of the Operations Plan. They must be kept in balance. The method of forecast consump­tion must provide for early visibility of when actual de­mand is significantly out of line with the forecast.

To be Continued


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