ARTICLE
In any company that aims to be competitive, getting ahead and working with an eye on the future is essential. That is why it needs to create what we call forecasting horizons.
How many products need to be manufactured next month? Is a peak in demand expected? Are raw material prices going to rise? When will the production line need to be expanded?
Forecasting horizons make it possible to plan intelligently and stay ahead, taking decisions that keep the company running smoothly.
What forecasting horizons are
In the context of supply chain management, forecast horizons (forecasting horizons) refer to the period of time for which a company makes forecasts, which may concern demand or other operational needs. This is a very important type of report for companies, as it makes it possible to plan:
- production needs
- distribution logistics
- and inventory management.
Thanks to these forecasts, companies can be more efficient in their planning and take the best decisions in light of future expectations.
Each company's forecasting horizon is directly linked to the nature of the business, which determines the type of decisions to be taken, taking into account the life cycle of its products, its customers' demand and the response times required.
For example, a company selling perishable products works with shorter forecasting horizons because of the shelf life of its products, whereas an automotive company will need long-term forecasts because of its complex production processes and innovation cycles.
How far ahead planning needs to be done depends on many variables. Some decisions must be taken with next week in mind, while others affect the company's annual projection. It is important to set the optimum timeframes correctly for each forecasting horizon.
Normally, three types of forecasting horizon are used: short, medium and long term.
3 types of forecasting horizon
It is easy to understand with an example: let us think of a company that manufactures household appliances. To manage its supply chain, this company needs to forecast how many products customers will demand in different periods:
- In the short term (a few weeks to a couple of months) the company has to decide how many products to assemble to fulfil the orders of the coming months. To do this, it must forecast immediate demand with great accuracy and keep good inventory control. This avoids problems such as stock-outs or excess stock.
- In the medium term (several months to a year) the company must consider factors such as seasonality or new product launches. For example, if it is known that demand for tumble dryers increases in winter, production must start to be adjusted months beforehand. It may also need to plan purchases of key components from its suppliers in advance.
- In the long term (more than a year) larger investments need to be considered, such as building a new factory to increase production capacity. Decisions of this kind must be based on market growth projections. Here, forecasts focus on analysing global market trends and the evolution of technology.
Forecasting horizons allow companies to balance their decisions according to the timeframes required for each action, and to avoid risks such as shortages, inventory obsolescence or overproduction.
Digitalising processes to create forecasting horizons
Process digitalisation is an essential prior step for companies to be able to create reliable forecasting horizons.
Is it possible to do it without digital tools? It is possible, but logically the result will be less reliable, with a large margin of error and much slower. Manual data collection, difficulty in identifying patterns, inefficient inventory management… These are major challenges that are solved by implementing suitable software.
For us, Odoo is the tool that allows companies not only to forecast demand, but also to adjust their production, inventories and purchasing according to these horizons.
In this way, it is possible to obtain and manage the data needed to make projections, for example:
- Inventory management and planning
- Production automation
- Real-time data analysis
- Integration with suppliers and logistics
At ALTERTECNIA we have trusted Odoo for years: the best tool available today for digitalising business processes. Would you like to know what it can do for your project? Call us and we will tell you.
