Question

Case Study

Demand Forecasting

For an organization to provide customer delight it is important that organization can understand what customer wants and how much do they want. If an organization can gauge future demand that manufacturing plan becomes simpler and cost-effective.

The process of analyzing and understanding current and past information to understand future patterns through a scientific and systemic approach is called forecasting. And the process of estimating the future demand of the product in terms of a unit or monetary value is referred to as demand forecasting.

The purpose of forecasting is to help the organization manage the present to prepare for the future by examining the most probable future demand pattern. However, forecasting has its constraint, for example, we cannot estimate a pattern for technologies and product where there are no existing pattern or data.

Business Forecasting Objective

The very objective of business forecasting is to be accurate as possible so that planning of resources can be done in a very economical manner and therefore, propagate optimum utilization of resources. Business forecasting helps in establishing a relationship among many variables, which go into the manufacturing of the product. Each forecast situation must be analyzed independently along with forecasting method.

Classification of Business Forecasting

Business forecasting has many dimensions and varieties depending upon the utility and application. The three basic forms are as follows:

Economic Forecasting: these forecastings are related to the broader macro-economic and micro-economic factors prevailing in the current business environment. It includes forecasting of the inflation rate, interest rate, GDP, etc. at the macro level and working of a particular industry at the micro level.

Demand Forecast: organization conduct analysis on its pre-existing database or conduct market survey as to understand and predict future demands. Operational planning is done based on demand forecasting.

Technology Forecast: this type of forecast is used to forecast future technology up-gradation.

Timeline of Business Forecasting

A forecast and its conclusion are valid within a specific time frame or horizon. These time horizons are categorized as follows:

Long Term Forecast: This type of forecast is made for a time frame of more than three years. These types of the forecast are utilized for long-term strategic planning in terms of capacity planning, expansion planning, etc.

Mid-Term Forecast: This type of forecast is made for a time frame from three months to three years. These types of forecasts are utilized production and layout planning, sales and marketing planning, cash budget planning and capital budget planning.

Short Term Forecast: This type of forecast is made of a time frame from one day to three months. These types of forecasts are utilized for day to day production planning, inventory planning, workforce application planning, etc.

Characteristics of Good Forecast

A good forecast is should provide sufficient time with a fair degree of accuracy and reliability to prepare for future demand. A good forecast should be simple to understand and provide information relevant to production (e.g. units, etc.)

Forecasting Methods

Forecasting is divided into two broad categories, techniques and routes. Techniques are further classified into quantitative techniques and qualitative techniques. Quantitative techniques comprise of time series method, regression analysis, etc., whereas qualitative methods comprise of Delphi method, expert judgment.

Answer the following Questions:

1. Explain the process of Demand forecasting according to you.

(200-250 words)

2. What are the different forms of forecasting?

(200-250 words)

3. Suggest the characteristics of good forecasting.

(150-200 words)

Answer 1

Explain the process of Demand forecasting according to you: The process of Demand Forecasting include the step by step process for forecasting the future demand for a product or services, we will here forecast or estimate or predict future demand for a product, it has wide importance, when we need to work on Mass production or production with large volume, as it is difficult to achieve the accurate forecast for the actual demand, thus, Organization should follow specific way for coming at the necessary objective, there are various step by step approach for preparing or forecasting systematic demand, those are stated below: First, we need to specify the objective of the demand forecasting is to be prepared, the objective could be formed considering long term or short term demand, could be for entire organizational product or may consider specific segment of the market, Once we have done with specifying the objective of the demand forecasting, next job is to evaluate the time perspective or duration for which we want to prepare forecast, The next immediate step is define or specify a Method to be used for demand forecasting, most of the method for forecasting usually come under two categories, those are survey methods, statistical methods, Collecting the data and adjusting them accordingly, all that to be done, once we have fixed method for forecasting Last step is to preparing the Estimation Result and Interpretation of available result and Information, What are the different forms of forecasting? Based on the application, we have many dimensions or types, forms of Forecasting, those are stated below: Economic Forecasting: it considers both macro and micro economic factors and some example of this forecasting are forecasting for Interest rate, Inflation rate, GDP at macro level and others micro level features at Organizational level, Demand Forecast: The process of Demand Forecasting include the step by step process for forecasting the future demand for a product or services, Technology Forecast: it is used for doing forecast of future technology modification, Now considering the timeline for Forecast, we can categorize forecast into many way: Long Term Forecast: Here, long term forecast is prepared for a time frame usually more than 3 years, we here consider long term strategic planning for an organization for doing expansion planning and capacity planning, Mid-Term Forecast: this forecast is prepared for a time frame usually from three months to three years, this forecast can be used for production planning, sales and marketing planning, Layout planning, cash budget planning and capital budget planning, Short Term Forecast: this forecast is prepared for a time frame usually from one day to three months, such forecast can be used for making plan of Inventory, production and workforce, Again, Forecasting can be categorized into two broad categories, techniques and routes. Techniques are of two types, those are quantitative techniques and qualitative techniques. Quantitative techniques include time series method, regression analysis, etc., whereas qualitative methods include Delphi method, expert judgment. Routes forecasting includes top-down route and bottom-up route. Suggest the characteristics of good forecasting: Good forecasting has multiple characteristics, those are as stated below: Good forecasting can provide more better, accurate and reliable forecasting for preparing forecasting of future demand, good forecast is easy to understand and take sufficient time for preparing the forecast Good forecasting also can provide various relevant information for production, for example, number of units to be forecast for a particular product, Characteristics for demand forecasting include this forecasting done for a specific period of time and it is helpful for preparing a decision and taking action, It considers historical data or past data For forecasting sales data, demand forecasting should be used, it can be expressed in terms of specific quantities,