Forecasting Demand
CHAPTER 4: FORECASTING DEMAND. What is forecasting? Forecasting is the planning tool to predict the future outcomes based on historical data and experience, knowledge of the management. It is very important for the company for developing new products or product line in the marketplace. Forecasting time horizons. A forecast is classified by the future time horizon into three categories. - Short-range forecast has a time of less than three months and up to one year. - Medium-range forecast spans form three months to three years. - Long-range forecast has a time for three years or more in time span. The influence of product life cycle. Most successful products pass through four stages such as introduction, growth, maturity and decline. According to Jay Heizer and Barry Render in Principles of Operations Management (p. 137, paragraph 4), “Forecasts that reflect life cycle are useful in projecting different staffing levels, inventory levels, and factory capacity as the product passes from the first to the last stage. Type of forecasts. Forecasts consist of three major types. - Economic forecasts are the planning tool to predict the indicators (ex., inflation rate, money supplies, and housing starts) to help the company in preparing medium to long-range forecasts. - Technological forecasts are the long-term forecast concerned with the rates of technological progress. - Demand forecasts are projections of demand for a company’s products or services. The strategic importance of forecasting. In Principles of Operations Management, the authors said that the forecast is the only estimate of demand until actual demand becomes known. Three important impact of product demand forecast are human resources, capacity and supply-chain management. Seven steps in the forecasting system. Forecasting has seven basic steps following. - Determine the use of
Cited: Heizer Jay, and Barry Render. Principles of Operations Management, 8th edition. Prentice Hall: Pearson Education, 2011. Print.