Supply chain teams can use aggregated demand forecasts to improve long-range accuracy. By aligning forecast aggregation with the correct time horizons, and grouping together forecasts to make decisions about long-term plans, execs will have a better view of the future.
Barriers to Aggregating
But too often for brands in Fashion, Apparel, & Footwear, the nuances of global supply chains over-complicate lead time calculations, creating a barrier to progress in forecast aggregation.
Additionally, transitioning to an aggregated forecast approach can be overwhelming for an organization raised on SKU-level forecasting. More often than not, demand planning, training, and onboarding have all taught planners to forecast by SKU — not in aggregate.
Vanguard has made this process simple for our customers. Our understanding of, and experience with, the delicate processes needed in Fashion, Apparel, & Footwear supply chains has led to the development of a tailored planning solution for the industry. Vanguard understands the nuances of our clients’ supply chains, guiding them toward S&OP best practice, and producing long-range forecasts at high levels of accuracy.
An example of forecast aggregation levels for an Apparel company:
|Purpose||Aggregation Level||0-3 months||4-6 months||7-12 months||13-24 months|
|a. Production, sales and packing materials ordering||SKU/Customer||x|
|b. Short-term capacity and crewing||Style/Configuration/Color/Size (SKU)||x|
|c. Capacity and raw materials ordering||Style/Configuration/Color||x|
|d. Financial reconciliation||Style/Configuration||x||x|
|e. Procurement contracts/network design||Style||x|
Aggregate with Agility
Aggregating forecasts for long-range planning allows supply chains to be more agile.
Forecast is going to be wrong in all cases, so demand planners should focus on forecasting ‘roughly right’ rather than ‘precisely wrong.’ It is better to have the full forecast with major product lines and/or geographies roughly right in the long term, than trying to reach a precise SKU forecast that leads to higher errors on the aggregate level,” Youssef said.
By aggregating forecasts, you make decisions based on roughly accurate predictions, and refine those commitments as other planning milestones approach, increasing your precision at each step. At the end of the day (or month, or year), planners need to be making decisions with both SKU-level and aggregate forecasts, depending on the particular planning purpose, for improved supply chain agility.