Forecasting Case

Forecasting

Forecasting is an important part of all businesses. The wrong prediction of future demand can send a business into peril by having too much excess inventory or not enough inventory to meet the demand of the customers. This could cause customers to get products at a discounted price so the business can rid itself of excess or customers will look elsewhere to get the products that they need. There are three different types of forecasts, steps to accurate forecasting and different methods to accurately measure a forecasts accuracy.

Almost all businesses use one of the three types of forecasts. Economic forecasts, which forecast the economy as a whole. This would include such areas as unemployment, inflation rates, and economic growth. Businesses as well as governments use economic forecasts to evaluate the world around us and predict what the future will look like.

Technological forecasting, or otherwise known as, foresight studies, help business forecast the use and change to technology. Businesses look for different ways to get a technological advantage in the future by forecasting what changes they will need to make to their own technology. Technology is changing constantly, and if a business cannot stay with this rapidly changing part of the business, they will fall behind other businesses in the future. Technology forecasting started in the 1960's to observe and techniques of forecasting as well as how it fell into day to day business operations. E-Commerce is a good example of technology that has occurred that businesses need to be a part of. Most retailers now offer on-line services to reach a broader customer base. If the retailers didn't predict the need for on-line shopping they are missing out on a fast increasing customer base and therefore losing sales to the competition.

The last type of forecasting is probably the most important in regards to everyday business. Demand forecasting is the prediction of the quantity of future goods and services that consumers will purchase. There are seven steps to getting an accurate forecast that will not only maximize sales by having the right product at the right time, the right amount of staff at peak times of business, but also reduce the chance for having excess inventory.

The first step is to determine what the forecast is going to be used for. This is a broad look at what you need to forecast whether it is inventory, personnel or some other part of the business that needs to be planned. It can be the forecast for future sales, future inventory, staffing needs by time period? All of these areas need to be forecasted in some aspect.

The second step is to select the items that will be forecasted. For supply chains, this would be the individual items that need to be manufactured. This is where an inaccurate forecast hurts businesses most. If the forecast is wrong, then you are either buying too much or too little of a product or the wrong product in general. For staffing purposes, if you don't forecast or schedule accurately, your service levels will go down and you may lose customers to your competitors. Many inputs are used to better forecast demand that include input from the sales department, finance department, marketing department and in some cases weather