How do you predict how a particular thing will perform, given set criteria? Forecasting models are one of the best ways to use what a business already knows to figure out what they're likely to encounter as they move forward. Thus, the past consumption of a particular material can potentially predict how the business will require this material in the future. SAP S/4HANA provides a series of forecasting models that companies can use for their material use predictions. Here, we'll cover four of the most common types of material forecasting models that businesses can use to streamline their material stockpiling.
1. Constant Model
This model is the simplest as it assumes that the use of materials is constant throughout the entire life cycle. Constant is a bit of a misnomer since the material use isn't the same each month. However, the use fluctuates within a small range, and an average constant use can be calculated over the month. One of the best cases for this type of prediction model is for things that the office constantly uses, such as electricity or water. Aside from some spikes in use in certain months where demand is high, the use is constant throughout the entire life cycle of the business.
2. Seasonal Model
Let's say our business makes winter clothing. During the winter months, demand for this clothing increases, meaning that there needs to be an increase in production to meet demand. This is a perfect example of a seasonal model using periods. The year can be divided into twelve periods of one month apiece. The need for raw materials can be calculated in advance to know when to order more materials so that there is only what the business needs in stock. This streamlines production and ensures that customers always have access to the business's goods.
3. Trend Model
Products don't always retain their popularity. It's pretty common to see products decrease in popularity as newer products with better features emerge. As these newer models enter the market, they tend to replace the older models on the shelves, decreasing sales numbers. The trend, in this case, is downward. Trend modeling can determine the ebbs and flows in a product or service's demand and allow businesses to set aside necessary raw materials when they expect such a demand to occur.
4. Seasonal Trend Model
A seasonal trend model sees the trend fluctuate predictably. It's a natural combination of the seasonal and trend models that explores how a particular time frame affects raw material usage.
Choosing the Right Model
Some models work better than others when it comes to application. How does a business know which model is best? SAP S/4HANA can analyze the historical data for material usage for the business and suggest a model that best fits the company's pattern. The model isn't a 100% accurate prediction for what will happen, but it gives the business a starting point. With time, the system will iteratively get better. A company can then leverage the power of a predictive process to ensure it doesn't run out of raw materials as demand starts to rise.
For more on forecasting models, strategies and implementation, check, the help portal.