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:

  1. Do you have customer contracts in your business/ industry?  If so, how far out do they go? 
  2. 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?
  3. How reliable is your forecast by product or customer grouping?  Forget about items and sku-level forecasts.  How about product category forecasts?
  4. Do you have access to demand data into your supply chain? 
  5. Are you asking questions about what is coming down the pike?  If not, why not?
  6. How much cushion do you have?  Do you have inventory or capacity availability?
  7. How prepared is your supply chain?  Can they handle volume spikes? 
  8. Are you willing to dedicate people to gain a view into the future?  Why or why not?
  9. 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.
  10. Are there downsides to looking too far into the future?  What are they?

© Lisa Anderson