Incorporating Bill of Materials in Bottom-Up Demand Forecasting

Abstract

In a manufacturing environment, the final product includes sub-assemblies and elementary parts that are put together hierarchically. By using hierarchy information in the bill of materials (BOM), demand forecasts for sub-assemblies and elementary parts can be generated from the final product. If an elementary part is used in multiple products, there will be several forecasts for the same part. The volatility of the aggregate forecast is expected to be higher as each product has its own independent demand pattern. An alternative approach is to reverse the process: first aggregate the historical data, then generate the forecasts. Hierarchical information from the bill of materials can be used for aggregation.