Why a rolling monthly demand forecast?

Kenneth M. Brooks, Jr

November 17th, 2007

When implementing a new inventory management system, one question that commonly arises is that the effort to create and maintain a rolling monthly forecast at the title level can be extensive so why not just continue to forecast when we’re about to run out of inventory and are planning for the next print run?The answer to this question lies in the broader impact that demand forecasting has as a component of inventory management in the broader sense.  Effective use of demand forecasting as a management tool affects many areas:

• Managing capacity at print vendors -  While initial print runs are easily managed to balance workload and capability across printers, reprints are more complex.  For reprints, there is some cost and effort to shift the title to another printer that must be considered.  Knowing what the future required capacity is by printer, format, paper, etc. allows shifts to be evaluated and managed before problems occur rather than as a last minute scramble.
• Managing corrections – Corrections are generally initiated at some fixed interval before a reprint.  With an ongoing plan identifying when reprints will occur, production and editorial workload can be more effectively balanced.
• Leveraging multiple print strategies –  Printers can and will offer discounts for printing in slack versus peak periods. A monthly inventory plan allows printings to be easily adjusted forward or backward to take advantage of pricing. Evaluation of explicit tradeoffs for printing in Asia versus domestically are also possible.
• Improving cash flow forecasting and management – Reprints are a large consumer of cash. By translating projected print runs into forecasts of cash flow requirements throughout the year and across multiple titles, specific determinations can be made to adjust print runs to limit cash consumption or to balance monthly cash needs.
• Validating and Balancing with sales and financial forecasts – The demand forecast should be kept in reasonable balance with sales plans in order to ensure that inventory purchasing supports projected sales.  This provides a valuable way to cross-check and validate separately managed customer, product line, channel and divisional sales forecasts. It also creates the ability to evaluate financial variances to determine where revenue discrepancies are coming from and adjust accordingly.
• Planning and purchasing paper – Similar to printing capacity management, paper purchasing must be done significantly in advance of the actual print run to ensure availability and optimal pricing. A long range monthly forecast, even if it moves around, provides a useful tool for paper buyers to determe how to arrange their supplies.

A rolling month-by-month demand forecast that is updated on a monthly basis offers these and many other benefits beyond improving order quantity decision making from a more detailed and accurate forecast.