question archive Discussion Question ; Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions
Discussion Question ; Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions
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Discussion Question ; Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions. Since the future is unknown, it is expected that some errors between a forecast and actual demand will exist, so the goal of a good forecasting technique would be to minimize the difference between the forecast and the actual demand. Address the following requirements: • • Articulate the difference in short and long-term forecasts, forecasting techniques, and the benefits and challenges of each technique. Create a forecast for a situation with which you are familiar (personal or professional) explaining the situation and why you chose the method of forecasting that you did. Embed course material concepts, principles, and theories, which require supporting citations along with at least two scholarly, peer-reviewed references in supporting your answer. Forecasting Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-1 You should be able to: LO 3.1 List features common to all forecasts LO 3.2 Explain why forecasts are generally wrong LO 3.3 List elements of a good forecast LO 3.4 Outline the steps in the forecasting process LO 3.5 Summarize forecast errors Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-2 ? Forecast – a statement about the future value of a variable of interest ? We make forecasts about such things as weather, demand, and resource availability ? Forecasts are important to making informed decisions Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-3 ? Expected level of demand ? The level of demand may be a function of some structural variation such as trend or seasonal variation ? Accuracy ? Related to the potential size of forecast error Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-4 ? Plan the system ? Generally involves long-range plans related to: ? Types of products and services to offer ? Facility and equipment levels ? Facility location ? Plan the use of the system ? Generally involves short- and medium-range plans related to: ? Inventory management ? Workforce levels ? Purchasing ? Production ? Budgeting ? Scheduling Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-5 1. 2. 3. 4. LO 3.1 Techniques assume some underlying causal system that existed in the past will persist into the future Forecasts are not perfect Forecasts for groups of items are more accurate than those for individual items Forecast accuracy decreases as the forecasting horizon increases Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-6 ? Forecasts are not perfect: ? Because random variation is always present, there will always be some residual error, even if all other factors have been accounted for. LO 3.2 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-7 The forecast ? Should be timely ? Should be accurate ? Should be reliable ? Should be expressed in meaningful units ? Should be in writing ? Technique should be simple to understand and use ? Should be cost-effective LO 3.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-8 1. 2. 3. 4. 5. 6. LO 3.4 Determine the purpose of the forecast Establish a time horizon Obtain, clean, and analyze appropriate data Select a forecasting technique Make the forecast Monitor the forecast errors Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-9 ? Allowances should be made for forecast errors ? It is important to provide an indication of the extent to which the forecast might deviate from the value of the variable that actually occurs ? Forecast errors should be monitored ? Error = Actual – Forecast ? If errors fall beyond acceptable bounds, corrective action may be necessary LO 3.5 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-10
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Demand Forecast
In business, one of the main keys to success is planning and making sound business decisions. One of the main tools that influence planning and decision-making is demand forecasting. Demand Forecasting is predicting future demand. One uses past data to estimate future demand for a product or a service. You project sales and production following the demand forecast.
There are different types of forecast; Short-term forecast and long-term forecast. Short-term forecast involving predictions of less than 12 months. The business focuses on demand for under a year. You focus on coming-up promotions, holidays, and offers. Short-term forecast project sales on a day-to-day basis. On the other hand, long-term Forecast project sales and production for a period greater than a year. A long-term forecast helps identify and plan for a season, usually on an annual basis. It helps in making long-term decisions such as expansion (Dietze, et al, 2018).
Demand forecast applies several techniques to predict. The major techniques used are qualitative techniques and quantitative techniques. Qualitative techniques are subjective. They are based on the opinion and judgment of individuals or a group of people. These techniques are applicable where there is insufficient historical data. They include market research, Delphi model, salesforce polling, and consumer surveys. Qualitative techniques are costly as they require the collection of data from a large number of people. They are also prone to biases. They are based on opinions and not facts. They lack the aspect of data. They are subject to the quality and size of the research or survey.
Quantitative techniques are focus on measurable data. They require a large quantity of historical data that can be referenced to predict future data. It is the study of past patterns to predict the future (Deb, et al., 2017). Quantitative techniques include the time series technique and causal modeling. The problem with quantitative techniques is that they rely heavily on past data, which is not always a good measure of the future.
Example
A textile company struggling to stay afloat before the global pandemic of Coronavirus looks at the demand for surgical masks. They have the ability, equipment, and material to switch from producing clothes and start producing surgical masks.
I would choose a short-term forecast as the production switch is not forever. It would predict how much stock the company needs to supply a particular market with the protective face masks. I would use the qualitative technique, particularly the market research, and predict if it is profitable to switch products.
