The planning hierarchy helps establish the context to which item forecasts are generated and managed. It is made up of two (3 if DRP is enabled) independent yet related hierarchies which for simplicity sake we will call the who and the what. The table that ties these elements together is the sales register in your ERP - the record of who bought what when, how much, and from where.
Without a proper hierarchy, the ability to roll up data using the sale record from the item level to any hierarchical level above becomes more complex. Once the hierarchy is built, it is significantly easier to pivot, present, and edit data.
The planning hierarchy may be left in its default state in DemandCaster which is Company (Overall) >> Customer >> Item. Most companies choose to add additional hierarchical levels between Overall >> Customer (the customer hierarchy) or Customer >> Item (the product hierarchy). They do this to better identify patterns in sales to help improve forecasting.
The Customer and Product Hierarchy
The relationship between these two hierarchies is like a pyramid. Each side is independent yet related and structured as top down one to many.
The Customer Hierarchy
In demand planning, the forecast is generated at the customer level or below. In DemandCaster, the Customer Hierarchy defines the who. This is who the items are sold to and is commonly composed of elements such as the end customer, ship to location, market, channel, region, or other top down one to many definition.
In DemandCaster, the Product Hierarchy defines the what. This is the physical item that is sold to the who / customer. The Product Hierarchy is commonly composed of the item, product category, product group, brand, or any other logical top down one to many definitions. It should never include any sales related element since sales and products have a many to many relationship thus not allowing the one to many rule to stand.
Putting the Two Together
The green line separates the customer side hierarchy from the product side hierarchy.
Please note that when adding levels within each hierarchy, every node within a level must be associated to a node at the upper level. If this does not happen, the forecasting process will not work properly.
The Distinction between Demand and Supply
Though DemandCaster may be demand planned by location as opposed to a market definition such as customer, at times there is confusion around location based planning. The multi-location in DemandCaster is related to the distribution of items - i.e. warehouse to warehouse movement as well as ship from logic. This allows the system to set inventory by location.
Though, at times, the warehouse location and forecast location are one in the same; most often they are not since distribution networks tend to be much more fluid. How you get the product to the customer could be a different question than where and who you are selling to.
This is why DemandCaster performs a function called Demand Translation that converts the consensus Demand Plan to a Supply Plan. If all of a customers forecast is delivered from a single warehouse location, then all of its forecasted demand will be fulfilled from that location.
The Planning Hierarchy in DemandCaster
In the example below, we have a 4 level hierarchy built in DemandCaster:
- Level 1: Company level
- Level 2: Customer/market/channel level
- Level 3: Product category level
- Level 4: Item level
There is no additional hierarchical level on the sales side and one extra hierarchical level on the product side.
The levels are as follows separated by >>:
- Overall Company
- Customer / Channel
- Product Category
Building a Hierarchy
Please read the article "How to Build a Planning Hierarchy" to learn more.