4.1 Rolling Forecast: Horizon Rules & Capacity Reservation

Manufacturing is a momentum machine; it cannot turn on a dime. The Rolling Forecast is the steering mechanism. It bridges the gap between the customer’s immediate sales reality and the factory’s physical lead times (often 12–20 weeks). A forecast is not a "guess"; it is a financial instrument that authorizes the factory to hire labor and purchase material. Without a disciplined forecast, the supply chain oscillates between shortage (revenue loss) and excess (cash flow death).

The Horizon Structure (Zones of Liability)

We segment the forecast into three specific time horizons. Each zone carries a different level of commitment and flexibility.

Zone 1: The Frozen Zone (Execution)

• Timeframe: Weeks 1 – 4 (Current Month).
• Status: Binding.
• Action: Production is scheduled; lines are staffed.
• Flexibility: 0%. No push-outs allowed. Changes require a "Line Down" fee.
• Requirement: Must be covered 100% by a hard Purchase Order (PO).

Zone 2: The Slush Zone (Material Authorization)

• Timeframe: Weeks 5 – 12 (Quarter + 1).
• Status: Semi-Binding.
• Action: Long Lead Time (LLT) materials are purchased. Driver ICs, PCBs, and connectors are ordered.
• Flexibility: ± 20%. Volume can shift, but the liability for unique materials is locked.
• Requirement: Covered by NCNR (Non-Cancellable Non-Returnable) agreement.

Zone 3: The Liquid Zone (Planning)

• Timeframe: Weeks 13 – 52.
• Status: Non-Binding.
• Action: Capacity planning and strategic sourcing agreements.
• Flexibility: 100%. This is the signal used to reserve floor space.
• Requirement: credible market data.

Logic:

• If a forecast entry moves from Zone 2 to Zone 1 → Then a hard PO must be issued immediately.
• If demand drops inside Zone 2 → Then Customer owns the raw material liability.

Signal vs. Commit

A forecast submission is a "Signal." It asks the question: "Can you build this?"

The factory's response is the "Commit." It answers: "Yes, we have the parts and people."

Do not conflate the two. A Customer Forecast of 10k units is meaningless if the Factory Commit is 5k due to a component shortage.

The Golden Rule of Reservation:

Capacity is reserved based on the Forecast, not the PO.

• Scenario: Customer forecasts 5k/month for Q3.
• Action: Factory reserves 5k/month capacity.
• Risk: If Customer sends PO for 10k/month in Q3 without prior forecast signal → Factory rejects the excess 5k. Capacity is First-Come-First-Served based on the forecast signal.

Pro-Tip: "Phantom Demand" destroys trust. If a customer consistently forecasts 10k but orders 5k to "secure safety stock," downgrade their capacity priority. Base your reservation on their "Consume Rate" (historical actuals), not their optimism.

Forecast Policy (The Rules of Engagement)

Embed these rules in the Master Supply Agreement (MSA).

Rule	Definition	Consequence of Breach
Cadence	Forecast submitted every Monday by 12:00 PM.	Late submission = Current week production plan slides 1 week.
Horizon	Minimum 12-month visibility required.	< 12 months = Lead times for strategic parts extend to market standard.
Variance	Zone 1 variance limit: 0%. Zone 2 variance limit: ±20%.	Excess demand is "Best Effort" only. Shortfall triggers material liability invoice.
End of Life	EOL ramp-down must be visible 6 months prior.	Sudden stop = Customer billed for 100% of stranded inventory.

The Forecast Response Template

The factory must formally respond to the forecast within 48 hours. Silence implies acceptance, which is dangerous. Use this format to flag constraints.

Header: Customer | Forecast Date | Reviewer

Section 1: The Green Zone (Accepted)

• Statement: "Weeks 1–8 demand is fully supported. Material and Capacity secured."

Section 2: The Constraint Log (Red Flags)

• Constraint 1: Week 10 request (5,000 units).
  • Capability: 3,500 units.
  • Root Cause: Shortage of PMIC (Part #XYZ).
  • Recovery: 1,500 balance moves to Week 12.
• Constraint 2: Week 18 request (12,000 units).
  • Capability: 8,000 units.
  • Root Cause: Test Station Capacity (CapEx required).
  • Action: Customer must approve CapEx spend by [Date] to unlock volume.

Section 3: Liability Alert

• Warning: Based on this forecast, we are placing orders for [List Critical Components] totaling $[Value].
• Action: Please acknowledge liability by return email.

Final Checklist

Control Point	Passing Criteria	State
Receipt Timing	Forecast received on agreed day/time.	On Time / Late
Sanity Check	Current forecast vs. Previous forecast deviation < 30%.	Verified
Lead Time Audit	No demand is requested inside the standard lead time of critical parts.	Verified
Response Sent	"Commit vs. Request" analysis sent back to customer.	Sent
ERP Load	Forecast loaded into ERP as "Planning Demand" (MRP active).	Loaded