Mar 9, 2020
Weekly or monthly forecasting – which is better?
Based on demand variation from week to week, a fair number of companies insist on doing their forecasting weekly. They believe that by doing this, it will be more accurate and improve their replenishment planning leading to overall better-managed inventory. But will it?
Weekly forecasting may be less effective and accurate than monthly forecasting. Let’s take a closer look.
Weekly forecasting is appropriate when you have:
- Frequent, short promotions of less than a week
- Short lead times and short replenishment cycles with the bulk of your items
- Your manufacturing is planned weekly with short planning horizons
- Your items have a very short shelf-life
Is weekly forecasting a good idea?
Now that we understand where weekly forecasting is appropriate, let’s look at reasons why it’s not such a great idea. Some of the detractors with weekly forecasting include:
- Seasonality can quickly move to a different week when comparing year on year sales by week. Trying to predict the weekly seasonality becomes unreliable and extremely difficult
- Managing and amending forecasts by week adds unnecessary time and effort to your team’s workload
- Measuring performance becomes more difficult and time-consuming
- Converting weekly data into monthly periods for reporting often results in a misalignment between the weeks and months
- Period to date exception reporting becomes difficult
Planning by week usually leads to greater instability in the supply chain as we try to respond to these weekly variations, which leads to more considerable strain on the demand planning team.
Planning by month is almost always more accurate than by week, as they flatten out the variations and pick up seasonality more reliably. Monthly replenishment forecasts are more stable and are not subject to over-reactivity.
Replenishment often negates the need for weekly forecasting
If the majority of your products have a total cover forward of greater than one month, which is safety stock + lead time + replenishment cycle > one month – then you ARE planning for a horizon longer than a month. In this situation, weekly forecasting becomes irrelevant.
Example A: if you import a widget on a 60 day lead time, you keep 30 days of safety or buffer stock, and you plan to receipt stock monthly, your total cover forward (horizon) looks like this:
30 days safety stock + 60 days lead time + 30 days cycle = 120 days
In this example, weekly forecasting is unnecessary. When you compute the recommended order quantity required today, you are looking at the forecast for the next four months. In this case, weekly variations will have little or no impact.
Example B: if you purchase washers locally on a seven day lead time, you keep ten days safety or buffer stock, and you plan to receipt stock fortnightly, your total cover forward (horizon) looks like this:
10 days safety stock + 7 days lead time + 14 days cycle = 31 days
In this example, where an item with a very short lead time is ordered more frequently, and you hold less safety stock when you compute order recommendations, you are looking one month forward. Even in this case, it is not necessary to have weekly forecasts drive replenishment.
Forecasting monthly but tracking daily
Forecasting monthly periods but tracking month to date sales versus forecast on a daily basis as you progress through the month is a much more accurate way to plan.
If there are any significant variations between actual sales and forecasts, these will be highlighted by a structured exception reporting process, enabling your team to review and amend the forecast if needed. They can apply their extensive market knowledge to make beneficial forecast adjustments.
Since order recommendations can be created and viewed by day, the impact of weekly versus monthly forecasts on replenishment is minimal (especially with products that have a planning horizon of one month or more).
The benefits of weekly forecasting for the vast majority of products are insignificant to a large extent and don’t warrant the extra effort, complexity, time, or energy required. In most cases, the use of weekly forecasts causes more issues than it resolves. In our opinion, it is far better to do monthly forecasts and rather let your team spend their valuable time managing the exceptions that arise via a structured exception reporting solution and process.