Demand Forecasting - Objectives, Classification and Characteristics of a Good Forecast
For an organization to provide customer delight it is important that organization can understand what customer wants and how much does 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 the future patterns through a scientific and systemic approach is called forecasting. And the process of estimating the future demand of 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 as 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 relationship among many variables, which go into 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:
Timeline of Business Forecasting
A forecast and its conclusion are valid within specific time frame or horizon. These time horizons are categorized as follows:
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 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., where as qualitative methods comprise of Delphi method, expert judgment.
Routes forecasting consist of top-down route and bottom-up route.
- Integrated Product Development
- Facility Location
- Facility Layout
- Capacity Planning
- Aggregate Planning
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