Setting strategy or designing a sales, inventory and operations planning (SIOP) process requires forecasting. How far into the future do you look and why?
Whether setting strategy or designing a SIOP (sales, inventory and operations planning) process, one of the most important questions to consider is how far into the future will you look for your demand planning/ sales forecasting process? And why?
As we think about whether the answer should be 1 month, 1 quarter or 1 year, let’s ask a few questions:
- Do you have customer contracts in your business/ industry? If so, how far out do they go?
- Regardless of the commitment level, how far out do you have information that is somewhat reliable? If it changes substantially from month-to-month, is it of any value?
- How reliable is your forecast by product or customer grouping? Forget about items and sku-level forecasts. How about product category forecasts?
- Do you have access to demand data into your supply chain?
- Are you asking questions about what is coming down the pike? If not, why not?
- How much cushion do you have? Do you have inventory or capacity availability?
- How prepared is your supply chain? Can they handle volume spikes?
- Are you willing to dedicate people to gain a view into the future? Why or why not?
- Have you considered a strategic sprint? Why are you setting arbitrary time frames when customer don’t care what you do? They want what they need when they need it.
- Are there downsides to looking too far into the future? What are they?