Question

It is agreed in the literature that forecasts are generally wrong. Yet, companies continue to conduct them. Give several reasons (at least TWO) why it is important for a manufacturer to conduct a forecast. Under what circumstances would it not be necessary to conduct a forecast. Think product characteristics and response time.

Answer 1

Increasing customer satisfaction is one of the reason to conduct a forecast. If you can predict the product demand, you can make sure that enough product is available to fulfill customer orders with short lead times(on-time)

Reducing inventory stockouts is another reason. If you are working with some long lead suppliers and buying from then, when you send a demand forecast to them, they'll arrange raw materials in anticipation of actual customer orders.

Even though they know forecasts are generally wrong, they are not proven useless because we saw how they're being used effectively without actual waiting/delay in the above two reasons.

When not to do it: Sometimes, the managers or the executives who forecasts the company's revenue growth would sell shares to stakeholders anticipating profits. If it goes in their direction, it's pretty good. But what if it doesn't? They'll be in debt and they'll be considered as liars to give false hopes to everyone.

Forecasting is just like an astrology, it should be used if you don't seem to be in jeopardy even if the prediction deviates from the original outcome.

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