Should I forecast by SKU or by category?

Both, at different altitudes. Category forecasts are more accurate because errors on individual SKUs offset, and they are the right basis for budget and capacity planning. Purchase orders need SKU-level numbers, so forecast the category, then split it across SKUs using recent share of mix.

Forecasting each SKU independently and adding them up produces a total nobody sanity-checked. Forecasting the total and allocating down keeps the total defensible and puts the argument where it belongs, on mix.

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