The Forecast Everyone Likes
A business unit submits a demand forecast of 124,000 units for the next quarter. Operations can build 105,000 without overtime; overtime can reach 112,000 at a 14% unit cost premium. The unit's last six forecasts averaged 9% above actual, with a range of +2% to +19%. The sales VP says the pipeline supports the number and has verbally committed to a customer. Finance has not approved the overtime. The forecast is due to the supply plan tomorrow; changing it later costs a 6-week replan and forfeits volume discounts.
1. What planning number do you recommend, and how do you handle the forecast bias?
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Recommended planning number: 112,000 units, with 105,000 firm and 7,000 released only under overtime approval. Do not plan to 124,000.
De-biasing: the last six forecasts averaged 9% above actual. A simple de-biased estimate is 124,000 ÷ 1.09 ≈ 113,800, rounded to 114,000. That is still above the 112,000 overtime ceiling, so the plan should carry an explicit 2,000-unit gap rather than assume it away.
Why not 124,000: planning at the submitted number builds 19,000 units above base capacity and 12,000 above overtime capacity, locking in a 14% premium on the marginal units and risking unsold inventory. The historical range is wide: 124,000 ÷ 1.02 ≈ 121,600 at the low-bias end and 124,000 ÷ 1.19 ≈ 104,200 at the high-bias end.
Controls: set a four-week demand review, pre-approve overtime only against leading indicators, and keep a cancellation window with the customer. State the 2,000-unit gap in the supply plan rather than burying it in the forecast.
2. How do you respond to the sales VP's verbal commitment?
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Response to the sales VP: separate the commercial commitment from the supply plan. A verbal commitment is not a demand signal unless it is backed by a signed order, a customer name, and a date. Ask for the pipeline evidence and the downside case: what happens if the customer orders 104,000 instead of 124,000?
What I offer: 105,000 firm, 7,000 overtime with a cancellation window, and a joint review at four weeks. I will not submit 124,000 as an unqualified plan because the unit's own six-quarter bias is +9% and the overtime is unapproved by Finance.
Escalation: if pressure continues to inflate the forecast to match the verbal commitment, document the request, the historical bias, and the cost of the extra 12,000 units, and escalate to Finance and the supply review owner. The forecast should carry uncertainty, not absorb a commercial promise.