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How long should we forecast the demand?
Supply chain teams in consumer companies often have an elaborate process for forecasting consumer demand. The process becomes so ingrained over time that it is taken for granted, even though various supply chain parameters would have possibly changed.
If we go through the basics, we need to forecast only for the horizon equal to the lead time of supply (cumulative lead time from the consumer end). For example, for setting the last mile inventory buffers at distributors, we need the forecast only for the next few days, whereas for production scheduling, we may need demand view for the next week or two. Similarly, for raw material procurement, we may need forecast for a few more weeks.
An important point which often gets missed is that these horizons vary from company to company. Moreover, these would also change over time. As the entire value chain gets more responsive, the lead times are expected to go down and so should the forecasting horizon.
We should also keep in mind that forecast horizon is action specific… deploying finished goods, scheduling production, ordering materials, expanding capacity.
Would love to hear your thoughts on the dynamism of forecast horizon!