Question

1. Please describe a scenario (Please don't use the sauce example it has already been used multiple times) that you have encountered recently as a consumer where a business has either under forecast or over forecast demand for a product that you were planning to purchase. You will generally notice under forecasting if the product is out of stock or over forecasting if there is excess inventory for the item. Please describe the implications to the retailer, manufacturer, and broader supply chain. You can present your response through the lens of your own discipline (accounting, marketing, etc.) if you wish.

2. Give three examples from your life in which you may forecast the future. Highlight the importance of accurate forecasting in the three examples you provide.

Answer 1

1. In everyday business and for long term planning, forecasting is very vital. If we analyze forecast using the financial perspective it shows the huge impact it has on the long term aspect of a business. Suppose there is business which has limited resources but many ventures. The business needs to optimize the actions so that every penny being can be maximized in profit returns. Suppose the leaders needs to understand how to allocate the money then it such cases proper financial budgeting and forecast is required. When those cases arrive, the financial team along with the respective teams sit and analyze the past performance and then forecast the future investments that need to be done. For example let us take the case of a bakery. There is limited budget and lot of products that can be sold. There are different prices for each product and there is no constant demand for each product. In such a case, the bakery can only plan the products based on the historical data and forecast the products and the investments needed based on the historical data. There could be situations where a particular product is in high demand. While doing forecasting, teams should consider even the smallest parameters so that the forecasting can b done right. If we look at the bakery case again, we can see that if they fail to do the forecast correctly and if they prepare the wrong food in excess then it would mean there is wastage and loss at the end of the day. On the other hand, if they undermine the demand and produce less quantities, there will be lot of customers who are unhappy on missing the products and there is huge opportunity loss for the bakery. This case shows the clear example of why forecasting is important. If we consider the case of huge manufacturing firm, there is always uneven demand from the customer. And on top of it, at all the stages there is additional buffer which is added to the product demand. This bullwhip effect causes lot of loss for all the parties that are involved in the supply chain. The only way to reduce such cases is to ensure the manufacturer can forecast the details correctly and understand the correct customer demands. The entire concept of supply chain depends on the demand supply balance and it is vital that each firm in the supply chain uses proper forecasting techniques to capture the correct demand.
2. I can relate to three examples for everyday life where I need to use forecasting. The first is regarding the weekly groceries I need to purchase. Usually I analyze the grocery I have used in the past few weeks and then plan the items and quantity that I need to purchase in the next week. In this case, accurate forecast is necessary since it helps me to keep low overheard especially for food items which is perishable in nature. It also make more sense and logical to buy items that are fresh rather than spend money to baulk up material which will not be used in the near term. Another area where I need accurate forecasting is during planning of trip. I need to estimate the costs involved so that I can plan the trip. Even for this case, I need to forecast the cost that is expected and ensure I save that much money. If I fall low during the trip it would be challenge. For this very reason, I would need to be very accurate during forecast of such cases. Another everyday situation where I need forecast is when I plan to complete certain activities during a day. The past historical data shows I take a certain amount of time to complete these many activities. If I intend to complete all the activities then I need to ensure I have planned my schedule accordingly. This can be done only when I can forecast the estimated time accurately for each activity. Forecasting plays a vital role in everyday life even though we may not use them in a theoretical manner. All of use forecast everyday actions where we use our past experiences to estimate a future event.