Forecasting Techniques

1. Why would demand forecasting make sense in a “make to stock” situation? It projects the standard components needed so that the product can be made after customer receiving a customer order.

Forecasts are extensively used to support business decisions and direct the work of operations managers. The two major types of forecasts are qualitative and quantitative. Within each of these types are multiple methods and models. Qualitative forecasts are based upon subjective data. Quantitative forecasts are derived from objective data. Both methods are not suitable for all situations and circumstances. Each has inherent strengths and weaknesses. The forecaster must understand the strengths and shortcomings of each method and choose appropriately. One example of forecasting is the United States Marine Corps use of forecasting techniques, both qualitative and quantitative, to predict ammunition requirements.

However, forecast errors will also lead to unhappy customers, lost sales, and excessive inventory. To minimize errors, retailers should find the right demand forecast. Retailers do not want to have a lot of inventory sitting in the back room and too little inventory that will cause out of stock. Holding huge inventory will cause a retailer to have more expenses and decrease their profit if item is not sold especially if the product is innovative type like electronics. The challenge is to balance the inventory with demand. Communication and contribution from people in functional area is also important to create better information and improve overall accuracy. At this time, customer satisfaction will start to decrease. For example, MPRNews says one of Target loyal customer, Ann Hendricks, she is disappointed with target store in St.Paul. “Too many times, she says that store is out of the milk, coffee, bread, pasta and other staples she wants. At Target, sometimes the whole section of cheeses is blank. There's nothing in there” (Moylan). A loyal customer like Ann Hendricks goes to the Lunds & Byerlys store in downtown St. Paul to buy her grocery

The retailers had to estimate their customers’ demands well in advance of the selling season and place bulk orders for each season’s inventory. This involved high risk for the retailers as over-estimation would lead to unsold stock; whereas under-estimation led to stock outs and loss of potential sales.

The current demand forecasting method is based on qualitative techniques more than quantitative ones. If the forecast is not accurate, the company would carry both inventory and stock out costs. It might lose customers due to shortage of supply or carry additional holding costs due to excess production. If the actual demand doesn’t match the forecast ones, and the forecast was too high, this will result in high inventories, obsolescence, asset disposals, and increased carrying costs. When a forecast is too low, the customer resorts to a competitive product or retailer. A supplier could lose both sales and shelf space at that retail location forever if their predictions continue to be inaccurate. The tolerance level of the average consumer

* Forecasting is an impartial strategic ingredient that will ensure apt base for reputable planning. Our forecast is always the first step in developing plans in running the business along with our future plans of growth strategies. With this tool, we are able to anticipate our sales within reason that then can allow for us to control our costs in conjunction with inventory which will then help us to enhance our customer service. Sales forecasting is a vital strategic tactic in our company’s methodology.

Planning and Forecasting is a vital function of management especially as it is related to inventory management. Planning has four processes associated with it. They are establishing goals, formulating strategies, implementing the plan and evaluating its success. The planning process of inventory will assist the organization choose the correct inventory system resulting in reduced costs and increased efficiency. For any business, having large amounts of inventory could prove to be expensive. In most company’s the management team will forecast sales on a monthly basis in order to keep enough inventories to fill customer orders in a timely fashion but not have an overflow of stock. There are various types of

Purchasing manager, Benson had difficulty in determining how many bottles he needed to order to support sales. He was concerned about over ordering to avoid issues with overstocking bottles that would not be used and incur a cost or become a loss when all of the bottles were changed with the new design. The challenge for him was to determine an accurate forecast for Greave’s 2004 sales. When a company plans its ordering or production schedule for a product it sells to the public, it must forecast the customer demand for this product so that it can stock appropriate quantities – neither too much nor too little (Albright, Winston & Zappe, 2010).

Forecasting is the methodology utilized in the translation of past experiences in an estimation of the future. The German market presents challenges for forecasting techniques especially for its retail segment. Commercially oriented organizations are used to help during forecasting as general works done by academic scientists are not easy to come across (Bonner, 2009).

M&L Manufacturing Company is an example of a company that could benefit from forecasting. In the past the company has made an educated guess to determine necessary production for

But even this is not possible in case of a new product or innovation. A forecast of sales, demand, cash, requirements and several such business valuables are extremely essential for a business in order to be able to appropriately plan and conduct its operations in an effective and efficient manner. Yet, forecasts cannot be made accurately as there are several factors and changes in the current environment that leads to variations in forecasts and impacts or causes a manager to make changes in the forecasts.

Before, the concept of demand forecast was to serve the key functional groups in achieving their own interest. Facing the new challenges, forecast needed to be more accurate. And therefore it needed a new concept that is to have a consensus forecasting that would accurately reveal market demand and align the needs of key actors in the forecasting process. Leitax implemented two specific changes in forecasting process. The first one is to switch the focus from sell-in to sell-through and second one is to ignore capacity constraints.

Coca-Cola is a multi-national corporation that has its headquartered in Georgia, Atlanta. The company involves itself in the business of beverage production. Subsidiary plants are located all over the world i.e. Asia, Africa, Europe, Australia and South America. Since the company has many branches and deals with a whole lot of inventory, there is a need to act proactively and timely so that there are no delays in logistics. Projections of inventory, i.e. inventory forecasting, are often done in the operations and supply chain management so that overproduction and inefficiencies are avoided. Coca-Cola also uses historic data to find out the direction of future trends (Butler, 2015). The process is used by the company to determine near accurate allocation of budgets for future production periods (Jacobs, 2013). There is a need for Coca-Cola as a company to find out the events that affect the company production wise. The occurrences include expectations of sales, and whether they will cause an increase or a decrease in the share price of the company. Nonetheless, forecasting provides a necessary benchmark for Coca-Cola, which has a long-term perspective of operations.

Forecasting is the art and science of predicting future events. Forecasting is a statement about the future. “Operations management is designed to support forecasted

In the partial fulfillment of the requirement of Master of Business Administration (M.B.A.) Program (2002-2004) Hemchandracharya North Gujarat University, Patan.