JDEtips 4On Manufacturing
JD Edwards Materials Planning, Demand Rules,
Page 1
November/December 2006 Volume VII Issue 6
and Forecast Consumption
Editor’s Note: You make ‘em,
they consume ‘em—that’s how the
mighty world of business goes round.
Understanding supply vs. demand
is an art unto itself. There’s no real
easy way to determine how much
product to make to satisfy custom-
ers’ needs and avoid critical back-
logs, without overstocking the ware-
houses. JD Edwards software allows
for forecasting, but the question of
which methods to use, when to use
them and how to use them often
eludes us. Terry Horner has some
great thoughts on how to calculate
and forecast demand that will hope-
fully set you on the right track. . . or
at least one that is easier than trying
to “guesstimate” how much product
you’ll need to plan for.
Abstract
This article is intended for compan-
ies using JD Edwards for the plan-
ning processes of sales forecasting,
DRP, MPS, and MRP. In this article,
we’ll define the term “Forecast Con-
sumption” and provide examples.
We’ll also define and discuss the
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standard JD Edwards planning time
fence codes and rules, and compare
and contrast different techniques for
demand calculations.
Also covered is the importance
of properly using demand rules in
materials planning. We also review
the relationship between different
industry demand patterns, and the
appropriate selection of demand rules
that should be used for planning.
The techniques reviewed in this
article apply to both the Enterprise
One® and World® versions of JD
Edwards software.
Forecasts of future,
not yet realized,
demand must be
a part of our MRP
planning system.
Background: Why Are
Demand Calculation Rules
Important?
In my experience working with
companies in the implementation
and management of manufactur-
ing planning software applications,
one of the least understood areas is
that of demand calculation rules and
“forecast consumption”. Sales fore-
casting is required any time a com-
pany has a cumulative manufactur-
ing and purchasing lead-time that
exceeds the amount of time custom-
ers are willing to wait for delivery of
the product from the time the order
is placed.
In order to ensure that there will
be product in stock when a customer
order is taken, the company must
have already purchased the required
material and manufactured the
product. In order to make sure that
MRP properly plans these logistical
activities in sufficient time, before
JDEtips.com
By Terry Horner
the customer order is booked, a fore-
cast quantity must be entered into
the planning system. If the customers
were willing to wait for the product’s
cumulative lead-time, we could have
simply let the order demand drive all
of the planning activities.
Unfortunately, if we cannot ship
the product quickly enough, custom-
ers will simply go down the street to
one of our competitors and buy the
product. So forecasts of future, not
yet realized, demand must be a part
of our MRP planning system.
You may be saying “Yes, yes,…
but you still have not answered the
question: Why are demand calcula-
tion rules and forecast consumption
important?”
Logic for demand calculations and
forecast consumption are important
for companies with MRP systems
that consider both customer order
demand, from firm sales orders, and
forecast quantities. The degree of
importance is larger as the volume
of future dated sales order “backlog”
increases (as we will see later).
If the logic used for forecast con-
sumption is not realistic for your
company’s demand pattern, then
invalid, erroneous demand figures
will be calculated by MRP, and this
will cause equally invalid and errone-
ous MRP messages. As a result, plan-
ners will find themselves chronically
“second guessing” their MRP mes-
sages. Another symptom of invalid
demand calculation logic is “nervous
MRP”. Instead of smoothly consum-
ing forecast demand, some rules may
cause lumpy, spiky demand values
that vanish almost as fast as they are
created.
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November/December 2006 Volume VII Issue 6
Many of my clients have struggled
with setting up the best JD Edwards
demand calculation codes for their
environment. One word of warning:
There is no perfect demand calcu-
lation technique for any company.
Every rule has risks, and by their
very nature, forecasts are almost
always wrong (often by a massive
amount). However, by selecting a
reasonable rule, you can help to
establish a more reliable and stable
planning system.
JD Edwards Time Fences
In JD Edwards, there are three dif-
ferent time fences used for materials
planning. These time fence values
are defined in the Item Branch/Plant
records:
1. Planning Fence
2. Freeze Fence
3. Message Display Fence
Only the “planning fence” will be
addressed in this article. The “freeze
fence” provides for the suppression
of MRP messages when the mes-
sage date is within the freeze fence
number of days from today. The
“message display fence” controls
how many days into the future MRP
action messages will be generated for
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the item.
The “planning fence” in JD
Edwards is actually misnamed,
and is different than the definition
according to APICS. APICS defines
it as:
Planning Time Fence – A point in
time denoted in the planning hori-
zon of the master scheduling process
that marks a boundary inside of
which changes to the schedule may
adversely affect component sched-
ules, capacity plans, customer deliv-
eries, and cost. Planned orders out-
side the planning time fence can be
changed by system planning logic.
Changes inside the planning time
fence must be manually changed by
the master scheduler. - APICS Dic-
tionary, 10th ed.
This is not how JD Edwards MRP
uses this value. In standard JD
Edwards, there really is no “planning
time fence” according to the APICS
definition. (The closest thing may be
the “message display fence.”)
A better description of the “plan-
ning fence” in JD Edwards would be
what APICS defines as the “demand
time fence”. APICS defines it as:
Demand Time Fence (DTF) – That
point in time inside of which the
forecast is no longer included in
total demand and projected avail-
able inventory calculations; inside
this point, only customer orders are
considered. Beyond this point, total
demand is a combination of actual
orders and forecasts, depending on
the forecast consumption technique
chosen. - APICS Dictionary, 10th
ed.
In JD Edwards, the planning fence
days defines two zones of time for the
item. In the zone less than the plan-
ning fence days, one rule is used to
perform your demand calculation.
In JD Edwards, the
planning fence days
defines two zones of
time for the item.
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Outside of the planning fence days, a
different rule is used. The code that
defines the two rules to be used is
called the “planning fence rule”. (As
we will see later, the APICS defini-
tion of Demand Time Fence is exact-
ly the case in JD Edwards if we use a
“planning fence rule” of “C”).
Sources of Demand in JD
Edwards
In JD Edwards, demand that is
considered by MRP can come from
several different sources:
• Customer sales orders
• Forecasts
• Transfer orders (DRP)
• Work orders
• Planned work orders
• Safety stock
• Other demand
Work order and planned work order
demands only exist for “dependent
demand”--the component and sub-
assembly items that are structured
in the bills of material for higher
level items, based on manufacturing
schedules under the control of the
company.
The “planning fence rule” in JD
Edwards has no affect on dependent
demand. It only affects the calcu-
lated demand from customer sales
orders and forecasts.
The Backlog Curve
Both customer sales order demand
and forecast demand are consid-
ered “independent demand”, that is,
demand from outside the direct con-
trol of the company such as requests
for end products, etc. However, it usu-
ally doesn’t make sense to add these
two demand types together. Why??
Because the forecast is an estimate of
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November/December 2006 Volume VII Issue 6

future customer order demand. The

two values are in fact the same thing.
The only difference is timing. Sales
orders should replace the forecast
quantities. This can be illustrated
by looking at the Backlog Curve in
Figure 1 below. Some companies sell
products in industries where custom-
ers are willing to accept longer order
delivery lead-times. In Figure 1, it
appears that a four week lead-time
is acceptable.

In many other industries, custom-

ers want fast delivery (often next
day, or same day). In this case, the
Backlog Curve would be pushed
much farther to the left in the Sold
category.

In this example, beyond week # 9

of the forecast, there are NO booked
customer orders. All of the customer
demand to be used for planning pur-
poses must be based on a forecast.
Between week # 4 and 9, some firm
customer orders have been booked,
but we know that many more orders
will be booked over this interval.
Over the first three weeks, all of
our anticipated demand is made
up of firm customer order demand.
There is no need to consider any out-
standing forecast values during this
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Figure 1 – The Backlog Curve
So as customer orders are being
taken, we should reduce the out-
standing forecast accordingly, in
order to come up with the best esti-
mate of a realistic future demand for
the period.
Forecast Consumption
This is why it is important to
understand the principle of “con-
suming the forecast”. According to
ented. This can be a big problem
for many companies. If you have
monthly forecasts and enter the
forecast for the first day of the
month, MRP will assume that
the entire quantity is needed in
inventory on the first day of the
month (could result in excess
inventory). Conversely, if you
have monthly forecasts and enter
the forecast for the last day of the

period. APICS, the definition is:
Consuming the Forecast – The pro-
cess of reducing the forecast by cus-
tomer orders or other types of actual
demands as they are received. The
I always recommend adjustments yield the value of the
remaining forecast for each period.”
no larger than weekly - APICS Dictionary, 10th ed.
forecast values for JD Edwards Forecasts
• Forecasts should not be added to
MRP planning. sales order demand, but should
be consumed by actual sales
order demand.
• Beware that JD Edwards fore-
casts are date and quantity ori-
month, MRP will assume that
the entire quantity is not needed
in inventory until the last day
of the month (could cause back-
order problems). As a result, I
always recommend no larger
than weekly forecast values for
MRP planning.
JD Edwards Planning
Fences and Rules
Figure 2 illustrates the standard
JD Edwards planning fence rules.
For each code, one rule for demand
calculation is used within the “plan-
ning fence days”, and a different rule
is used beyond the “planning fence
days”.

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November/December 2006 Volume VII Issue 6
Figure 2 – JD Edwards Planning Fence Rules
Here’s how these codes work,
using code “C” for illustration,
and a “planning fence days” of 10:
Between today’s date and ten days in
the future, only open customer order
demand will be used by MRP. If
there are forecast records within the
next ten days, they will be completely
ignored. However, when MRP plans
from ten days out through the entire
planning horizon, both open sales
order demand and forecasts will be
JDEtips Journal
used. And what will MRP do? It will
add up all of the forecasts within each
MRP planning period, and add up
all of the open sales order quantities
within each MRP planning period;
compare the two totals and use the
larger of the two for MRP planning
(MRP planning periods are specified
in the MRP run processing options).
We will have examples using several
of these codes later in this article.
Forecast Consumption and
Planning Fence Rule “H”
Planning fence rule “H” (Fore-
cast Consumption Periods) was not
originally included in early versions
of JDE. In reality, it is the only code
that accurately calculates a realistic
demand calculation for many types of
demand patterns. However, code “H”
requires more understanding and
setup. Here are some other aspects
of planning fence rule “H”. (Editor’s
Note: We’ve placed the screen shots
at the end of the article.)
• Only one method is used for cal-
culation of forecast consumption
and demand over the entire MRP
planning horizon.
• Forecast consumption periods
that may be different than the
sizes of the MRP planning peri-
ods must be defined (all of the
other rules use the MRP defined
planning periods for the com-
parison of sales order demand to
forecast demand). See Figure 10,
Forecast Consumption Periods
(P3405) for the setup program.
• The size of user defined forecast
consumption periods must not be
less than forecast periods.
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• Two past due MRP planning
periods must be defined in the
MRP processing options.
• The sales order document types
that you wish to consume the
forecasts must be defined. See
Figure 11 -- User Defined Code
– Shipped Forecast Consumption
(UDC 40/CF for entry of docu-
ment types).
• Actual demand from these sales
orders consumes forecast.
• Actual shipments from these
sales orders also relieve forecast
(unlike the other rules).
Sample 1
Let’s take a look at a business case
of forecast consumption and demand
calculation.
T hi nk
JDE
In JD Edwards DRP and MRP,
if you incorporate a planning
fence rule of “H” for a
forecast item, you are able
to consume forecasts by only
certain specified sales order
document types. None of the
other planning fence rule values
allow you to selectively consume
forecasts by document type.
One of the most difficult things
to find is where these document
types are entered. The answer
is: they are defined as UDC
codes and are stored in UDC
table 40/CF, Shipped Forecast
Consumption.
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November/December 2006 Volume VII Issue 6

Result 2 - Consume Forecast Over

Weekly Planning Period
This is the result that would occur
in JD Edwards if the PFR,PFD =C,0
or PFR,PFD =G,40.

Over the first month, this result

still overstates demand by 4 units.
When customer orders in week 2
exceed 20, they assume that actual
first month sales will be 84. But one
could equally claim that some cus-
tomers merely ordered 4 of the units
forecast in week 1, one week later
than expected. We still do not know
if the total monthly demand will
Figure 3 – Sample Data for Demand Calculation

In this example, a company wants

weekly planning periods, but wants
to forecast and consume demand on
a monthly basis. The monthly fore-
cast is split up into a weekly fore-
cast value. The company wants to
consume the entire monthly forecast
over the entire month, not over a
weekly value (Figure 3).

Result 1 – Add Forecast to Actual

Customer Orders
If we do not consume forecast, but
merely add the original weekly fore-
cast to the customer order demand,
we would have the results shown in Figure 4 – Result 1, Demand Calculation Adding Forecast to Customer Orders
Figure 4.
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This is the result that would occur

in JD Edwards if the Planning Fence
Rule = “F”, and the Planning Fence
Days = 0, or PFR,PFD =F,0.

Clearly this result would overstate

demand. The original forecast is an
estimate of customer orders that will
be placed. As the customer orders are
booked, the forecast value should be
reduced.

This is illustrated in Figure 5 by

changing the original sales forecast
row by a row for “unconsumed sales
forecast”.
Figure 5 – Result 2, Demand Calculation; Greater of Forecast or Customer Orders by Week

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November/December 2006 Volume VII Issue 6

Figure 6 – Result 3, Demand Calculation; Greater of Forecast or Customer Orders by Month

in fact exceed our original monthly

forecast of 80 units.

Result 3 - Consume Forecast Over

Entire Month
Figure 6 illustrates the result that
would occur in JD Edwards if the
PFR,PFD =H,99, and a forecast con-
sumption calendar with monthly,
month-end dates.

This result maintains total month-

ly demand at 80 units, but merely
plans 16 units in week 1 and 24
units in week 2. After the entire 20
units in week 2 are consumed, the
computer begins to consume fore-
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cast values for other weeks that are

within the same forecast consump-
tion monthly period.
Comparison of Planning
Fence Rules
Sample 2
Next. we will look at a different
sample. We will compare the results
for three different settings of our
PFR, PFD. This sample was gener-
ated from one of my JD Edwards
World clients. The format display
is a little different; we will look at
demand, day by day. The following
charts show the differences between
three different planning code set-
Figure 7 – Comparison of Planning Fence Rules
tings for the same item and same
customer orders, and forecasts, using
JD Edwards. This company runs
MRP with planning periods of one
daily period, followed by 40 weekly
periods (Friday ending dates), and
three monthly periods. MRP is run
on 4/17/06. Weekly forecast values
with Friday dates are used.
In Figure 7, the first PFR, PFD
setting is C,0. In other words, use
the greater of forecast or customer
demand through the entire MRP
plan. For period 1 (day 1, 4/17/06)
use customer orders of 20 (which is
greater than forecast of 0).
For period 2, (4/18 through Friday
4/21); customer order demand is 5
and forecasts are 100, so we will set
demand to 100. The way JD Edwards
does this is to leave 4/18/06 demand
at 5 and make 4/21/06 demand 95.

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November/December 2006 Volume VII Issue 6
Period 3 (week of 4/24 through
4/28) demand is all forecast set as
100.
Using this C,0 logic, total demand
is 220.
The second PFR, PFD setting is
F,14. In other words, use the only
forecasts for the next 14 days, and
then add customer orders to forecasts
from 15 days out through the end of
the MRP plan. Using this F,14 logic,
total demand is 200.
The third PFR, PFD setting is H
with a weekly calendar for forecast
consumption. In other words, for the
first week (4/17 through 4/21) com-
pare forecast of 100 with customer
demand of 25. The 25 units will
consume part of the 100 and thus
reduce the forecast on Friday from
100 to 75.
The forecast on 4/28 will stay at
100.
Using this H logic, total demand is
200.
JDEtips Journal
The degree of forecast
accuracy varies
greatly for companies,
based on the nature
of the industry and
markets served.
Figure 8 – Comparison of Planning Fence Rules After Shipments
Sample 3 - Shipments Occur
Next, looking at Figure 8, let’s
assume that on Monday and Tuesday
(4/17 and 4/18) additional customer
orders for 50 units are booked and 52
units are shipped out from customer
orders. The ONLY method that takes
this shipment “relief” into account is
code “H”. Code “C” only compares
OUTSTANDING customer orders to
the forecast during the MRP periods.
Both codes “C” and “F” tend to over-
state the demand as we go later into
the week (since the entire forecast
quantity is on Friday).
After 4/21 is complete, both code
“C” and “F” demand totals will
plummet back down. This illus-
trates why planning fence rule “H”
provides a better demand estimate
in many situations, and also better
evenness and stability.
Demand Characteristics
The best methods for demand cal-
culation in an organization depend
on the nature and characteristics of
customer and market demand pat-
terns. There are several characteris-
tics related to a company’s forecasts,
and other characteristics related to a
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company’s sales order patterns. Let’s
review some of these.
Forecast Characteristics
• Monthly vs. weekly forecast peri-
ods. Some (in fact most) compa-
nies maintain and update fore-
casts on a monthly basis. Other
companies maintain and update
them on a weekly basis.
• Accurate vs. inaccurate when
compared with actual demand
over time. The degree of forecast
accuracy varies greatly for com-
panies, based on the nature of
the industry and markets served.
In many high-tech industries,
forecasts are very inaccurate,
whereas in high volume com-
modity markets, forecasts may
be extremely accurate.
Sales Order Characteristics
• Some companies experience
a small number of very large
customer orders, typically with
lumpy demand, whereas others
experience a large number of
very small customer orders that
are relatively smooth and steady
in nature.
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November/December 2006 Volume VII Issue 6
• Some products’ demand is very
high volume, whereas other
products have a very low volume
of demand.
• Some markets must respond to
rapid, immediate shipment de-
mand, whereas other markets
are made up of a large degree
of backlog and future-dated
sales orders, make-to-order, and
assemble-to-order (many gov-
ernment/NASA orders are of this
type).
Conclusions
Here is a summary list that indi-
cates which standard JD Edwards
planning fence rules apply to which
types of forecast and sales order
demand characteristics.
“G” (with PFD specified) or “C”
(with PDF of zero) rules might make
sense if:
• Forecast periods are weekly or
smaller
• Either smooth or lumpy demand
patterns may occur
• Both Immediate shipment
demand or future dated orders
may occur
JDEtips Journal
“F” (with PFD specified) rules might
make sense if:
• Forecasts are weekly or smaller
• There is an extremely smooth
demand pattern
• Immediate shipment demand is
the case
• Relatively accurate forecasts are
attained
“S” or “C” rules (with PFD speci-
fied) might make sense if:
• There is a make-to-order or an
assemble-to-order environment
where dated order demand is the
case
• Either smooth or lumpy demand
patterns may occur
“H” rules almost always make the
most sense (and are better for rela-
tively accurate forecasts) if:
• Forecast periods can be monthly
or weekly or less (because ship-
ments are consumed)
• Either smooth or lumpy demand
pattern may occur
• Both Immediate shipment de-
mand or future dated orders may
occur
If your company has any make-
to-stock products, and seriously
wants to achieve a world class JD
Edwards MRP and DRP planning
system, I would strongly recommend
implementation of the “planning
fence rule” technique of “H” with
a maintained forecast consumption
calendar. This may not be the case
if your company is completely make-
to-order or assemble-to-order. It also
is not the case if your company either
has very simple, easily forecasted
demand, or your company’s MRP/
DRP planning system has higher
priority data and management dis-
cipline issues to deal with.
The only real downside to the use
of code “H” is that it requires a little
more sophistication to understand it
and more setup and maintenance to
support it.
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If you want to
really improve your
MRP and DRP
planning using JD
Edwards, my
strongest rec-
ommenda-
tion would
be to hire
the person
shown in Figure 9- Fully Qualified
Figure 9 as Forecaster
your Fore-
cast Analyst. Good luck!!
Safe Planning to You and Yours on
the Stormy Seas!!
Terry Horner, CFPIM, CCP, Presi-
dent, TNH, Inc. is an industry con-
sultant who works closely with the
executive management of clients in
the definition and implementation of
business planning and control initia-
tives needed to improve performance
and competitiveness. Mr. Horner
has been a consultant and employee
in the JD Edwards applications envi-
ronment since 1994, and has over 25
years of materials management and
information systems experience in a
wide range of industries. His back-
ground also includes the implemen-
tation of fully integrated ERP sys-
tems. Mr. Horner is APICS certified
(CFPIM) at the Fellow Level and is
also Certified Computing Profes-
sional (CCP). He teaches courses in
operations management at DePaul
University and CPIM courses for the
Chicago APICS Chapter. He is a
former Vice President of Eight Week
Education for the Chicago Chapter
of APICS. Terry.Horner@ERPtips.com.
≈
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Figure 10 - Forecast Consumption Periods (P3405)

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Figure 11 - User Defined Code – Shipped Forecast Consumption (UDC 40/CF)

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