Forecasting

Definition

Forecasting is a prelude of planning

Forecasting is the process of estimation in unknown situations

The Forecast Management allows to effectively managing customer demand with timely, reliable forecasts.

Forecasting is used in the practice of Customer Demand Planning in everyday business forecasting for manufacturing companies. The discipline of demand planning, also sometimes referred to as supply chain forecasting, embraces both statistical forecasting and a consensus process

Forecasting is the process of projecting past sales demand into the future. Implementing a forecasting management allows to quickly assess current market trends and sales so that we can make informed decisions about our operations.

Need of forecasting:

To supply customers with timely delivery of goods
To avoid excess inventory
To level the work load
To estimate capacity requirements
To create financial plans and budgets
To plan new product development and introduction
To plan for workforce recruitment and training

Customer Determines Forecast

Make-to-Stock

companies that meet their customers after the product is completed. The end items are forecasted.

Assemble-to-Order

Companies that meet their customers after subassemblies are completed. Subassemblies are forecasted for kit distribution. Since the options are specified in the order, there is no uncertainty in the configuration of the end item.

Make-to-Order and Engineer-to-Order

Companies that meet their customers before the product is produced. Since the end-item is specified before materials are ordered, this eliminates the risk of carrying inventory. Forecasting of end-items is not necessary. However in order to reduce lead time for acquiring equipment and for training labor, forecasting of capacity such as machinery or skilled labor may be required.

Three major forecasting methods

Qualitative

This is projections based on judgment, intuition and informed option.

Extrinsic

These are projections based on external indicators which relate to demand for a company’s products.

Intrinsic

Intrinsic is referred as forecast done by Historical data available. Recorded in the company and are readily available.

Measure forecast accuracy

Mean Absolute deviation

Measures forecast error.

The desirable deviation calculation is as close to zero as possible.

Percent of Accuracy

Measures forecast bias.

The desirable calculation is as close to 100 percent as possible.