In a nutshell: Split factors

There are two basic approaches to sales forecasting: the bottom-up approach and the top-down approach. The bottom-up approach is based on the individual materials that need to be stocked and creates a statistical forecast for each individual item. The forecasts for the individual articles can then be summarized via product hierarchies up to the company forecast. The top-down approach takes the opposite approach. Here, the sales department prepares a forecast at a higher product hierarchy level or product group level. This forecast is then broken down step by step to the individual materials to be stockpiled. This breaking down is done using split factors. Split factors are calculated from the quantity or sales ratios of the next product hierarchy level below the forecast level.

Our tip:

Dealing with split factors is always critical. If you compare different years with each other, it is quite possible that the split ratios are very similar in different years. However, if you look at the split ratios at monthly level, for example, you will see that they fluctuate greatly from month to month and usually differ significantly between the same months in different years. For this reason, you should only work with split factors where this is unavoidable. Therefore, start your forecasts bottom-up with statistical forecasts and only use the top-down approach and split factors to incorporate market trends on the part of sales at higher product hierarchy levels.

Prof. Dr. Andreas Kemmner

Prof. Dr. Andreas Kemmner

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