Forecast reduction keys
Tip
This article describes demand forecasting functionality that's built into Microsoft Dynamics 365 Supply Chain Management. For an even better planning and forecasting experience, we recommend that you try Demand planning in Microsoft Dynamics 365 Supply Chain Management, which is Microsoft's next-generation collaborative demand planning solution. For details, see the Demand planning home page.
This article provides information about the different methods that are used to reduce forecast requirements. It includes examples of the results of each method. It also explains how to create, set up, and use a forecast reduction key. Some methods use a forecast reduction key to reduce forecast requirements.
Methods that are used to reduce forecast requirements
When you include a forecast in a master plan, you can select how the forecast requirements are reduced when actual demand is included. Note that master planning excludes forecast requirements from the past, which means all forecast requirements before today's date.
To include a forecast in a master plan and select the method that is used to reduce forecast requirements, go to Master planning > Setup > Plans > Master plans. In the Forecast model field, select a forecast model. In the Method used to reduce forecast requirements field, select a method. The following options are available:
- None
- Percent – reduction key
- Transactions – reduction key
- Transactions – dynamic period
The following sections provide more information about each option.
None
If you select None, the forecast requirements aren't reduced during master scheduling. In this case, master planning creates planned orders to supply the forecasted demand (forecast requirements). These planned orders maintain the suggested quantity, regardless of other types of demand. For example, if sales orders are placed, master planning creates additional planned orders to supply the sales orders. The quantity of the forecast requirements isn't reduced.
Percent – reduction key
If you select Percent - reduction key, the forecast requirements are reduced according to the percentages and periods that are defined by the reduction key. In this case, master planning creates planned orders where the quantity is calculated as forecasted quantity × reduction key in each period. If there are other types of demand, master planning also creates planned orders to supply that demand.
Example: Percent – reduction key
This example shows how a reduction key reduces demand forecast requirements according to the percentages and periods that are defined by the reduction key.
For this example, you include the following demand forecast in a master plan.
| Month | Demand forecast |
|---|---|
| January | 1,000 |
| February | 1,000 |
| March | 1,000 |
| April | 1,000 |
On the Reduction keys page, you set up the following lines.
| Change | Unit | Percent |
|---|---|---|
| 1 | Month | 100 |
| 2 | Month | 75 |
| 3 | Month | 50 |
| 4 | Month | 25 |
You assign the reduction key to the item's coverage group. Then, on the Master plans page, in the Method used to reduce forecast requirements field, you select Percent - reduction key.
In this case, if you run forecast scheduling on January 1, the demand forecast requirements are consumed according to the percentages that you set up on the Reduction keys page. The following requirement quantities are transferred to the master plan.
| Month | Planned order quantity | Calculation |
|---|---|---|
| January | 0 | = 0% × 1,000 |
| February | 250 | = 25% × 1,000 |
| March | 500 | = 50% × 1,000 |
| April | 750 | = 75% × 1,000 |
| May through December | 1,000 | = 100% × 1,000 |
Transactions – reduction key
If you set the Method used to reduce forecast requirements field to Transactions - reduction key, the forecast requirements are reduced by the qualified demand transactions that occur during the periods that are defined by the reduction key.
The qualified demand is defined by the Reduce forecast by field on the Coverage groups page. If you set the Reduce forecast by field to Orders, only sales order transactions are considered qualified demand. If you set it to All transactions, any non-intercompany issue inventory transactions are considered qualified demand. If intercompany sales orders should also be considered qualified demand, set the Include intercompany orders option to Yes.
Forecast reduction starts with the first (earliest) demand forecast record in the reduction key period. If the quantity of qualified inventory transactions is more than the quantity of demand forecast lines in the same reduction key period, the balance of inventory transactions quantity will not reduce previous or future periods.
The value of the Percent field on the reduction key lines isn't used when the Method used to reduce forecast requirements field is set to Transactions - reduction key. Only the dates are used to define the reduction key period.
Note
Any forecast that is posted on or before today's date will be ignored and won't be used to create planned orders. For example, if your demand forecast for the month is generated on January 1, and you run master planning that includes demand forecasting on January 2, the calculation will ignore the demand forecast line that is dated January 1.
Example: Transactions – reduction key
This example shows how actual orders that occur during the periods that are defined by the reduction key reduce demand forecast requirements.
For this example, you select Transactions - reduction key in the Method used to reduce forecast requirements field on the Master plans page.
The following sales orders exist on January 1.
| Month | Number of pieces ordered |
|---|---|
| January | 956 |
| February | 1,176 |
| March | 451 |
| April | 119 |
If you use the same demand forecast of 1,000 pieces per month that was used in the previous example, the following requirement quantities are transferred to the master plan.
| Month | Number of pieces required |
|---|---|
| January | 44 |
| February | 0 |
| March | 549 |
| April | 881 |
| May through December | 1,000 |
Transactions – dynamic period
If you select Transactions - dynamic period, the forecast requirements are reduced by the actual order transactions that occur during the dynamic period. The dynamic period covers the current forecast dates and ends at the start of the next forecast. In this case, master planning creates planned orders to supply the forecasted demand (forecast requirements). However, when actual order transactions are placed, the forecast requirements are reduced. The actual transactions consume part of the forecasted requirements.
When this option is used, the following behavior occurs:
- Reduction keys aren't required or used.
- If the forecast is completely reduced, the forecast requirements for the current forecast become 0 (zero).
- If there is no future forecast, forecast requirements from the last forecast that was entered are reduced.
- The demand forecast reduction time fence isn't included in the forecast reduction calculation. Instead, the coverage group time fence is used for forecast reduction.
- Positive days are included in the forecast reduction calculation.
- If actual order transactions exceed the forecasted requirements, the remaining transactions aren't forwarded to the next forecast period.
Example 1: Transactions – dynamic period
Here is a simple example that shows how the Transactions - dynamic period method works.
For this example, you include the following demand forecast in a master plan.
| Date | Demand forecast |
|---|---|
| January 1 | 1,000 |
| February 1 | 1,000 |
You also create the following sales orders.
| Date | Sales order quantity |
|---|---|
| January 15 | 200 |
| February 15 | 400 |
In this case, the following planned orders are created.
| Demand forecast date | Quantity | Explanation |
|---|---|---|
| January 1 | 800 | Forecast requirements (= 1,000 – 200) |
| January 15 | 200 | Sales orders requirements |
| February 1 | 600 | Forecast requirements (= 1,000 – 400) |
| February 15 | 400 | Sales orders requirements |
Example 2: Transactions – dynamic period
In most cases, systems are set up so that transactions reduce demand forecasts in specific forecast periods: weeks, months, and so on. These periods are defined in the reduction key. However, the time between two demand forecast lines can also imply a period.
For this example, you create a demand forecast for the following dates and quantities.
| Date | Demand forecast |
|---|---|
| January 1 | 1,000 |
| January 5 | 500 |
| January 12 | 1,000 |
Notice that, in this forecast, there isn't a clear period between the forecast dates. Between the first and second dates there is a four-day span, and between the second and third dates there is a seven-day span. These spans are the dynamic periods.
You also create the following sales order lines.
| Date | Sales order quantity |
|---|---|
| December 15 in the previous year | 500 |
| January 3 | 100 |
| January 10 | 200 |
In this case, the forecast is reduced in the following manner:
- Because the first sales order isn't in any period, it doesn't reduce any forecast.
- Because the second sales order is between January 1 and January 5, it reduces the forecast for January 1 by 100.
- Because the third sales order is between January 5 and January 12, it reduces the forecast for January 5 by 200.
Therefore, the following planned orders are created.
| Demand forecast date | Quantity | Explanation |
|---|---|---|
| December 15 in the previous year | 500 | Sales order requirements |
| January 1 | 900 | Forecast requirements period January 1 to January 5 (= 1,000 – 100) |
| January 3 | 100 | Sales order requirements |
| January 5 | 300 | Forecast requirements period January 5 to January 10 (= 500 – 200) |
| January 12 | 1,000 | Forecast requirements period January 12 to end |
Create and set up a forecast reduction key
A forecast reduction key is used in the Transactions - reduction key and Percent- reduction key methods for reducing forecast requirements. Follow these steps to create and set up a reduction key.
Go to Master planning > Setup > Coverage > Reduction keys.
Select New to create a reduction key.
In the Reduction key field, enter a unique identifier for the forecast reduction key. Then, in the Name field, enter a name.
Define the periods and the reduction key percentage in each period:
- The Effective date field indicates the date when creation of the periods starts. When the Use the effective date option is set to Yes, the periods start on the effective date. When it's set to No, the periods start on the date when master planning is run.
- Define the periods that the forecast reduction should occur during.
- For a specific period, specify the percentages that the forecast requirements should be reduced by. You can enter positive values to decrease requirements or negative values to increase requirements.
Use a reduction key
A forecast reduction key must be assigned to the coverage group of the item. Follow these steps to assign a reduction key to an item's coverage group.
Go to Master planning > Setup > Coverage > Coverage groups.
On the Other FastTab, in the Reduction key field, select the reduction key to assign to the coverage group. The reduction key then applies to all items that belong to the coverage group.
To use a reduction key to calculate forecast reduction during master scheduling, you must define this setting in the setup of the forecast plan or the master plan. Go to one of the following locations:
- Master planning > Setup > Plans > Forecast plans
- Master planning > Setup > Plans > Master plans
On the Forecast plans or Master plans page, on the General FastTab, in the Method used to reduce forecast requirements field, select either Percent - reduction key or Transactions - reduction key.
Reduce a forecast by transactions
When you select Transactions - reduction key or Transactions - dynamic period as the method for reducing forecast requirements, you can specify which transactions reduce the forecast. On the Coverage groups page, on the Other FastTab, in the Reduce forecast by field, select All transactions if all transactions should reduce the forecast or Orders if only sales orders should reduce the forecast.