nick18_in
Nikhil Gadodia
Some points...
Forecast Consumption is the process by which Sales Orders 'consume' the forecast so that the demand is not over-estimated.
Suppose you are forecasting in daily buckets, and for day 1 to day 7, there is a forecast of 5 items each (total demand = 35)
Suppose you have a sales order of 15 on day 3. Under normal forecast consumption, only the forecast on day 3 will be consumed, and the total demand for that week for the next planning run will be 45 (35-5+15).
Backward consumption would typically be used in conjunction with a window for consumption. Lets say the window is 2 days in this case. For the above scenario, the adjusted demand would be 40 (35-10+15). If the window for consumption was 3 days, then the sales order would have consumed forecast for 3 days prior to that day.
Forward consumption works in a similar manner. The difference being, that this will reduce the forecast of the days that fall after the scheduled ship date of the sales order.
1. The reason why backward and forward forecast consumption can be useful is due to the inherent inaccuracy of forecast values w.r.t time (forecasting buckets). Remember that Forecasts are generally created by the Sales function who are really not too interested in 'when' demand materializes as long as they can meet their monthly/quarterly targets !! But they may be forced to provide weekly or even more granular forecasts by the Production function.
2. The logic for Backward/ Forward consumption (assuming both are used and windows are specified) could be something like this -
a. Is the Customer Order "Normal Demand" (or anticipated/forecasted Demand") ?
b. If yes, then does Customer Order qty exceed unconsumed forecast for forecast bucket in which order is due (ship date\ due date) ?
b1. If no, then forecast is consumed in same bucket.
b2. If yes then is then is a backward/ forward consumption rule/window defined ?
b2a. If no then order demand is added to the (totally consumed) forecast in same bucket.
b2b. If yes, then consume (unconsumed) forecasts in previous/next buckets. Generally if both windows are defined then sequence followed is first period backward then first period forward then second period backward and so on. Other algorithms/logic may also be used.
Forecast Consumption is the process by which Sales Orders 'consume' the forecast so that the demand is not over-estimated.
Suppose you are forecasting in daily buckets, and for day 1 to day 7, there is a forecast of 5 items each (total demand = 35)
Suppose you have a sales order of 15 on day 3. Under normal forecast consumption, only the forecast on day 3 will be consumed, and the total demand for that week for the next planning run will be 45 (35-5+15).
Backward consumption would typically be used in conjunction with a window for consumption. Lets say the window is 2 days in this case. For the above scenario, the adjusted demand would be 40 (35-10+15). If the window for consumption was 3 days, then the sales order would have consumed forecast for 3 days prior to that day.
Forward consumption works in a similar manner. The difference being, that this will reduce the forecast of the days that fall after the scheduled ship date of the sales order.
1. The reason why backward and forward forecast consumption can be useful is due to the inherent inaccuracy of forecast values w.r.t time (forecasting buckets). Remember that Forecasts are generally created by the Sales function who are really not too interested in 'when' demand materializes as long as they can meet their monthly/quarterly targets !! But they may be forced to provide weekly or even more granular forecasts by the Production function.
2. The logic for Backward/ Forward consumption (assuming both are used and windows are specified) could be something like this -
a. Is the Customer Order "Normal Demand" (or anticipated/forecasted Demand") ?
b. If yes, then does Customer Order qty exceed unconsumed forecast for forecast bucket in which order is due (ship date\ due date) ?
b1. If no, then forecast is consumed in same bucket.
b2. If yes then is then is a backward/ forward consumption rule/window defined ?
b2a. If no then order demand is added to the (totally consumed) forecast in same bucket.
b2b. If yes, then consume (unconsumed) forecasts in previous/next buckets. Generally if both windows are defined then sequence followed is first period backward then first period forward then second period backward and so on. Other algorithms/logic may also be used.