{"id":12233,"date":"2024-01-22T10:01:55","date_gmt":"2024-01-22T14:01:55","guid":{"rendered":"https:\/\/smartcorp.com\/forecasting\/you-need-to-team-up-with-the-algorithms-copy\/"},"modified":"2024-01-22T10:47:48","modified_gmt":"2024-01-22T14:47:48","slug":"gebruikmaken-van-erp-planningsboms-met-slimme-ipo-voorspelling-van-het-onvoorspelbare","status":"publish","type":"post","link":"https:\/\/smartcorp.com\/nl\/blog\/leveraging-erp-planning-boms-with-smart-ipo-forecast-the-unforecastable\/","title":{"rendered":"Maak gebruik van ERP-planningstuklijsten met slimme IP&O om het onvoorspelbare te voorspellen"},"content":{"rendered":"

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\u200bIn a highly configurable manufacturing environment, forecasting finished goods can become a complex and daunting task. The number of possible finished products will skyrocket when many components are interchangeable. A traditional MRP would force us to forecast every single finished product which can be unrealistic or even impossible. Several leading ERP solutions introduce the concept of the \u201cPlanning BOM\u201d, which allows the use of forecasts at a higher level in the manufacturing process. In this article, we will discuss this functionality in ERP, and how you can take advantage of it with Smart Inventory Planning and Optimization (Smart IP&O) to get ahead of your demand in the face of this complexity.<\/p>\n

Why Would I Need a Planning BOM?<\/strong><\/p>\n

Traditionally, each finished product or SKU would have a rigidly defined bill of materials. If we stock that product and want to plan around forecasted demand, we would forecast demand for those products and then feed MRP to blow this forecasted demand from the finished good level down to its components via the BOM.<\/p>\n

Many companies, however, offer highly configurable products where customers can select options on the product they are buying. As an example, recall the last time you bought a personal computer. You chose a brand and model, but from there, you were likely presented with options: what speed of CPU do you want? How much RAM do you want? What kind of hard drive and how much space? If that business wants to have these computers ready and available to ship to you in a reasonable time, suddenly they are no longer just anticipating demand for that model\u2014they must forecast that model for every type of CPU, for all quantities of RAM, for all types of hard drive, and all possible combinations of those as well! For some manufacturers, these configurations can compound to hundreds or thousands of possible finished good permutations.<\/p>\n

\"Planning<\/a><\/p>\n

There may be so many possible customizations that the demand at the finished product level is completely unforecastable in a traditional sense. Thousands of those computers may sell every year, but for each possible configuration, the demand may be extremely low and sporadic\u2014perhaps certain combinations sell once and never again.<\/p>\n

This often forces these companies to plan reorder points and safety stock levels mostly at the component level, while largely reacting to firm demand at the finished good level via MRP. While this is a valid approach, it lacks a systematic way to leverage forecasts that may account for anticipated future activity such as promotions, upcoming projects, or sales opportunities. Forecasting at the \u201cconfigured\u201d level is effectively impossible, and trying to weave in these forecast assumptions at the component level isn\u2019t feasible either.<\/p>\n

 <\/p>\n

Planning BOM Explained<\/strong><\/p>\n

This is where Planning BOMs come in. Perhaps the sales team is working a big b2b opportunity for that model, or there\u2019s a planned promotion for Cyber Monday. While trying to work in those assumptions for every possible configuration isn\u2019t realistic, doing it at the model level is totally doable\u2014and tremendously valuable.<\/p>\n

The Planning BOM can use a forecast at a higher level and then blow demand down based on predefined proportions for its possible<\/em> components. For example, the computer manufacturer may know that most people opt for 16GB of RAM, and far fewer opt for the upgrades to 32 or 64. The planning BOM allows the organization to (for example) blow 60% of the demand down to the 16GB option, 30% to the 32GB option, and 10% to the 64GB option. They could do the same for CPUs, hard drives, or any other customizations available. \u00a0<\/em><\/strong><\/p>\n

\"Planning<\/a><\/p>\n

 <\/p>\n

The business can now focus their forecast at this model level, leaving the Planning BOM to figure out the component mix. Clearly, defining these proportions requires some thought, but Planning BOMs effectively allow businesses to forecast what would otherwise be unforecastable.<\/p>\n

 <\/p>\n

The Importance of a Good Forecast<\/strong><\/p>\n

Of course, we still need a good forecast to load into an ERP system<\/em>. As explained in this article<\/a>, while ERP\u00a0 can import a forecast, it often cannot generate one and when it does it tends to require a great deal of hard to use configurations that don\u2019t often get revisited resulting in inaccurate forecasts. \u00a0It is therefore up to the business to come up with their own sets of forecasts, often manually produced in Excel. Forecasting manually generally presents a number of challenges, including but not limited to:<\/p>\n