6 How long should the forecasting horizon be?
As a demand planner, the time you can dedicate to reviewing demand forecasts is limited. You need to focus your attention on a limited number of products and a limited forecasting horizon.12 To put it simply, you cannot work on three-years-forward forecasts for every single product in your portfolio. You simply don’t have the time. Instead, you need to focus your attention on the forecasting horizon that is the most useful for your supply chain.
How long should this high-focus forecasting horizon be?
As usual, you should answer this question by thinking about what your supply chain is trying to optimize and achieve—and the lead times involved with these decisions.
Based on my experience, supply chains (especially manufacturers) often forecast demand up to 18 months forward (relying on forecasting models to populate all these predictions). But, as management tracks accuracy KPIs on a limited selection of lags (if not a single one), they implicitly (or explicitly) want planners to focus on a limited set of periods. Let’s illustrate this with two statements I heard when discussing with clients:
- “We focus on forecasting M+2, and we only track KPIs for this lag as we need to plan production two months forward.”
- “We focus on forecasting M+3 and M+12 (and only track KPIs for these two lags) as we need to have a view on mid- and long-term.”