Forecast Horizon (Delivery Period)

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There are two approaches that can be employed to draw up an order. Both are based on the needs of the trade organization, but one is based on a “current” time and the other “a certain period” of time. The choice of the approach you use may be dictated by the nature of your business, the financial policy of your company, logistical constraints, agreements with suppliers, or any one of many other factors. As an example, the need a pizza restaurant to obtain fresh cucumbers from a neighboring agricultural company is very different from the supply of shipping containers from a foreign laboratory. This difference is referred to as the forecast horizon.

 

Forecasting horizon

 

1. To use the first, “current” approach, the analysis of the products is carried out at a time selected by the manager (for example, at the end of every day).

In this case, the solution analyzes the need for the products for a time horizon consisting of two components:

Т1 = Delivery Period + Time to prepare an order

This means that new need for a product (and as a consequence, new orders to the supplier) can be formed on a daily basis as new product is consumed.

 

2. The second, “current period” approach presumes that we want to order product in such a way that we could continue operations for a certain amount of time without worrying about the constant orders.

For example, a Russian company regularly buys equipment from a plant in Germany, but because the terms for execution and delivery of the order are long, the current practice is that the company creates orders every three months.

By analyzing the goods on hand in January of 2010, we order the amount of product that would last until April of 2010. We invested once and can continue working. April 2010 is our forecast horizon, and the point of the next order. The analysis of the needs is also carried out for the T1 point of time, but when we derive the recommendation for products “to buy”, we also buy enough to match the time specified in the “Time Horizon.”

Т1 = Delivery Period + Time to prepare an order
Т2 = Т1 + Forecast horizon

 

Know more:

— Demand forecasting – information about it you can find HERE

— Sales analysis – information about it you can find HERE ;

— Planning – information about it you can find HERE and HERE ;

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