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Homework answers / question archive / Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions
Demand forecasting results in an estimate of future demand and gives an organization a basis for planning and making sound business decisions. Since the future is unknown, it is expected that some errors between a forecast and actual demand will exist, so the goal of a good forecasting technique would be to minimize the difference between the forecast and the actual demand. Address the following requirements: • • Articulate the difference in short and long-term forecasts, forecasting techniques, and the benefits and challenges of each technique. Create a forecast for a situation with which you are familiar (personal or professional) explaining the situation and why you chose the method of forecasting that you did. Embed course material concepts, principles, and theories, which require supporting citations along with at least two scholarly, peer-reviewed references in supporting your answer. Keep in mind that these scholarly references can be found in the Saudi Digital Library by conducting an advanced search specific to scholarly references. Forecasting Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-1 You should be able to: LO 3.1 List features common to all forecasts LO 3.2 Explain why forecasts are generally wrong LO 3.3 List elements of a good forecast LO 3.4 Outline the steps in the forecasting process LO 3.5 Summarize forecast errors Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-2 ? Forecast – a statement about the future value of a variable of interest ? We make forecasts about such things as weather, demand, and resource availability ? Forecasts are important to making informed decisions Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-3 ? Expected level of demand ? The level of demand may be a function of some structural variation such as trend or seasonal variation ? Accuracy ? Related to the potential size of forecast error Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-4 ? Plan the system ? Generally involves long-range plans related to: ? Types of products and services to offer ? Facility and equipment levels ? Facility location ? Plan the use of the system ? Generally involves short- and medium-range plans related to: ? Inventory management ? Workforce levels ? Purchasing ? Production ? Budgeting ? Scheduling Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-5 1. 2. 3. 4. LO 3.1 Techniques assume some underlying causal system that existed in the past will persist into the future Forecasts are not perfect Forecasts for groups of items are more accurate than those for individual items Forecast accuracy decreases as the forecasting horizon increases Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-6 ? Forecasts are not perfect: ? Because random variation is always present, there will always be some residual error, even if all other factors have been accounted for. LO 3.2 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-7 The forecast ? Should be timely ? Should be accurate ? Should be reliable ? Should be expressed in meaningful units ? Should be in writing ? Technique should be simple to understand and use ? Should be cost-effective LO 3.3 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-8 1. 2. 3. 4. 5. 6. LO 3.4 Determine the purpose of the forecast Establish a time horizon Obtain, clean, and analyze appropriate data Select a forecasting technique Make the forecast Monitor the forecast errors Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-9 ? Allowances should be made for forecast errors ? It is important to provide an indication of the extent to which the forecast might deviate from the value of the variable that actually occurs ? Forecast errors should be monitored ? Error = Actual – Forecast ? If errors fall beyond acceptable bounds, corrective action may be necessary LO 3.5 Copyright ©2018 McGraw-Hill Higher Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education 3-10
Demand Forecasting
Forecasting is the process of stating the future value of a variable of interest. Short-term forecasting aims to give an outlook covering a short period, typically between one month and two years (Agrawal et al., 2018). The most notable item is that such forecasting often includes details about ordinary things and even has clear timelines when those things will occur. On the other hand, long-term forecasting often focuses on the general direction something is taking and covers a long period, often more than five years. The forecasting may not have specific dates, limiting the forecast to general trends expected to occur. Effective forecasting is a process that has to consider many things, and the best technique differs depending on the situation.
The straight-line forecasting technique mainly gets used to help predict an item’s future growth or decline (Rajchakit, 2017). One of the advantages is that the method can use reliable data to help develop clear ideas of what will happen in the future. The use of what is already known is effective in helping increase the accuracy of the forecast made. The technique is also advantageous in helping with information regarding the parameters of operations which can help with accurate decision making across many different business segments.
On the other hand, there is the downside that the technique risks overlooking some changes that may occur in the future and thus may be inaccurate. The use of past data risks overlooking future changes, affecting the data used and the results. There is also the fact that the process can sometimes be time-consuming and resource-intensive, thus can limit the effectiveness of the whole process. Lastly, when the process is done on a large scale and by professionals, it can be very costly for the organization involved. Such considerations can be impactful, and there is a need to consider if the disadvantages outweigh the advantages before choosing to use the method.
One of the areas that interest me the most is that of technology and particularly television technology. Over several decades, the technology has improved considerably from cable television to satellite television, and now the use of the internet for television is on the rise. I forecast that the increase in internet access and on-demand television will continue at a fast rate. Such change will slowly reduce the market share of satellite and cable television. It is a change that has already been occurring. Using the straight-line technique of forecasting, the growth of on-demand television like Netflix and the use of the internet for television will continue to increase in the coming years.
