Forecasts are more accurate in the aggregate. But, for production planning, capacity planning and procurement you can’t use an aggregate forecast. You will need a tool to determine the individual SKU forecast so you may perform your planning functions that allows production to function. There are multiple versions of planning bills but for now we’ll focus on the easiest one which is a straight forward planning bill.
First to use a planning bill you will need to divide your products into product families. APICS defines product families as “a group of products with similar characteristics, often used in production planning (or sales and operations planning).
A planning bill uses past usage history to determine the percentages of sales within a product family. As an example, within the product family widgets the blue ones consisted of 30% of the sales, the red ones 20% and the white ones 50%. This history can be manipulated to take into account seasonality or higher or lower sales. Let’s say your sales group forecasts that the demand for widgets will be 1,000,000. When this planning bill is applied the forecast will be 300,000 blue ones, 200,000 red ones and 500,000 white ones. But it can go further than that. A planning bill can be a multi-level bill that takes into account further variations. Let’s say there are different sizes of widgets. Within the white ones ½” made up 60% of your sales, ¾ inch was 30% of your sales and 1” was the remaining 10% of your sales or white widgets. That would equate to a forecast of 300,000 ½”, 150,000 ¾” and 50,000 1” white widgets. Now, to make a widget you need the corresponding shim… I think you’re getting the idea. There’s an example of a planning bill on CashflowABC for you to use to see how powerful a tool this can be.
Planning bills need to be reviewed and maintained on a regular basis. As you sales change so will your planning bills. Since a planning bill uses historic data to determine product breakdown within the product family you will want to weight the most recent data to capture the latest demand trends.
There are many advantages to using planning bills. It helps to keep your forecasts accurate for the end items. They can be multi-level and even tied into your individual bills of material. It helps facilitate capacity planning and master production scheduling.
The one issue you need to be aware of is variances in demand that equate to the overall product family forecast. As an example, let’s say that in the example given above your demand for ¾ and 1” white widgets was reversed from the forecasted amounts. The person or people initially accountable for the product family forecast will say that their forecast was accurate that it’s someone else’s problem. In this case, which is rare, someone needs to take ownership of it. Not to take the blame but to determine why so future forecasts and planning bills will be more accurate.