Demand Planning: Managing The Unforecastables

DEMAND PLANNING: MANAGING THE UNFORECASTABLES By Alan L. Milliken Often forecasters use the “best model” approach in forecasting, but for some products “best model” may not be truly the best ... coefficient of variation (COV) can be used to determine whether or not a product is forecastable, the higher it is, the more difficult to forecast ... one way to manage an unforecastable product is to sell it on a Make-to- Order basis. One aspect of the evolution in business forecasting is ability to identify whether or not a given item is forecastable and, if it is unforecastable, how to manage it. This article will address that issue. Forecasting and planning is part of Demand Planning. Those who are responsible for this function are often called Demand Planners or Demand Managers. The four steps to managing unforecastable items are: 1. Identification: Whether or not an item is forecastable. 2. Profit margin: How much profit that item generates. 3. Safety stock: How much safety stock that item requires. 4. Course of action: What actions can be taken to manage its demand. IDENTIFICATION Before you start preparing a forecast for any item, you want to know whether ...