Forecast Reduction in Microsoft Dynamics AX
If your manufacturing company uses a forecast, one of the decisions you must make is how to handle that forecast when you run MRP, called Master Scheduling, in Microsoft Dynamics AX.
For example, two key questions are:
1) how much of the forecast should you consider valid and
2) how should you consume the forecast with actual orders?
Many take the approach that in nearer periods of time, you should consider less of the forecast when planning and in further out periods you should consider more of the forecast.
This is a fundamental concept that is generically referred to as “replacing forecast with knowledge” and Dynamics AX provides the tools to do just that.
The first thing you need to do is to visit the Master Plan and look at the setup – specifically in the Forecast group where the Reduction Principle resides.
Path = Master planning > Setup > Plans > Master plans
The Reduction Principle determines how AX will reduce the forecast requirements when you run the Master Scheduling Process. The four choices, along with what each does, are:
- None: No reduction occurs during master scheduling.
- Percent - reduction key: The reduction key drives how AX reduces the forecast during Master Scheduling.
- Transactions - reduction key: Transactions drive how AX reduces the forecast during Master Scheduling.
- Transactions - dynamic period: Actual order transactions that occur during the dynamic period drive how AX reduces the forecast during Master Scheduling. The dynamic period covers the current forecast dates and ends with the start of the next forecast.
This example uses Percent - reduction key as the Reduction Principle. Now look at the Reduction key itself.
Path = Master planning > Setup > Coverage > Reduction keys
As mentioned earlier, many people take the approach that in periods closer to the present, actual orders should have replaced the forecasted demand. Any remaining forecast should be reduced so that the organization does not over-produce. Those same folks also assume that the further out into the future you look, the more of the forecast you should take into account.
Again, this is just one approach to managing forecast reduction and is an approach the Reduction Key allows you to take.
This Reduction Key reduces the forecast 95% in the first month, 90% in the second month, etc. If you had a forecast quantity of 1,000 in July, AX would only calculate demand for 950 because the Reduction Key took it down by 95% assuming also that actual orders had consumed most or all the original forecast.
Here is a recap of the forecast reduction principles. The three basic choices are:
- None – No consumption occurs
In this graph, the Master Plan is a combination of the Gross Requirements and Sales Orders. Sales Orders in AX do not consume the forecast.
- Open Orders -- Open orders consume the forecast
In the first period in this example, the Sales Orders of 30 consume all but 10 of the forecast quantity of 40.
- Percent – reduction keys and orders consume the forecast
In this example, in the second period, Sales Orders = 20, Forecast = 40 (which will be reduced by 75%) so the total required quantity is 30.
Here’s one more setup to consider: the Coverage Group.
(Detailed discussion about the Coverage Group and its inner workings are beyond the scope of this post. This is a high-level example.) You need to select the Reduction Key here. Remember the Coverage Group settings override the Master Plan settings.
Path = Master planning > Setup > Coverage > Coverage groups
Now you can see how the settings play together in Master Scheduling. As an example, there is a Product FG-2112 that has a demand forecast of 500 each every 14 days as shown below.
There is also various sales order demand for this product.
When you run Master Scheduling, you get the following planned orders for the product.
Now you can look at planned order number 807311 in detail by double-clicking on it in the grid.
The Pegging tells the source of demand story for the planned order that has a total quantity of 169. You see three different sales order lines at 48 each and a demand forecast for 25. Remember the original forecast was 500, but this particular demand occurs in the first month so the Reduction Key reduces it by 95%, leaving us with 50 for the forecast.
This was a brief overview of how Dynamics AX allows you to consume forecasts, and the example here is just one of many ways to handle forecast demand in AX.
For more information on forecasting, or other topics in AX contact us today.