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Demand Forecasting

This document provides guidance on demand forecasting for production planning. It recommends using customer survey scores from the previous period to estimate market share and potential unit demand. It also suggests augmenting forecasts for segments that frequently experience stock outs. Additionally, it notes the importance of considering upcoming R&D projects. The document outlines how forecasts can be applied to marketing plans and production levels. It warns of risks from forecasts that are too aggressive or conservative, like excess inventory or stock outs. Finally, it discusses carrying costs, shortage costs, and balancing risks versus returns.

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Rachel Young
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38 views

Demand Forecasting

This document provides guidance on demand forecasting for production planning. It recommends using customer survey scores from the previous period to estimate market share and potential unit demand. It also suggests augmenting forecasts for segments that frequently experience stock outs. Additionally, it notes the importance of considering upcoming R&D projects. The document outlines how forecasts can be applied to marketing plans and production levels. It warns of risks from forecasts that are too aggressive or conservative, like excess inventory or stock outs. Finally, it discusses carrying costs, shortage costs, and balancing risks versus returns.

Uploaded by

Rachel Young
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DEMAND

FORECASTIN
G

THE BASIC FORECASTING PROCESS

THE DECEMBER CUSTOMER SURVEY FOR EACH


PRODUCT (SEE SEGMENT ANALYSIS) CAN BE USED TO
APPROXIMATE MARKET SHARE IN THE FOLLOWING
PERIOD:

POTENTIAL UNIT DEMAND


(SURVEY SCORE/SUM OF ALL SCORES IN FINE CUT)(TOTAL
UNIT DEMAND)
TOTAL UNIT DEMAND IS FOR NEXT ROUND

AUGMENT FORECASTS IN SEGMENTS THAT HAVE


NUMEROUS YES INDICATORS IN THE STOCK OUT
COLUMN (SEGMENT ANALYSIS)

CONSIDER YOUR UPCOMING R&D WHICH MIGHT NOT


BE REFLECTED IN SURVEY SCORE

THE DIFFERENCE BETWEEN DEMAND (MARKETING)

Your forecast can be applied in two areas:

MARKETING // Drives the


pro-forma financial statements that
will help you make decisions / i.e.
how many units youll sell

PRODUCTION // Determines
the number of units you will have
available for purchase during the
next round of the simulation / i.e.
How many units youll make

WHATS THE WORST THAT COULD


HAPPEN?
SCENARIO
MARKETING
PRODUCTION
YOUR
FORECAST IS
TOO
AGGRESSIVE

YOUR PROFORMAS
WILL CREATE TOO
ROSY OF A
SCENARIO PERHAPS
LEADING TO AN
EMERGENCY LOAN

YOU WILL END UP


YOUR
WITH TOO MUCH
FORECAST IS
WORKING CAPITAL
TOO
CONSERVATIVE
DEMANDTAKE
SUGGESTI
FORECASTING
CONSERVATIVE

ON

POSTION

YOU WILL HAVE


UNSOLD INVENTORY
AND HIGH
CARRYING COSTS

YOU WILL STOCK


OUT AND LOSE
PROFITS AND CASH
FLOW
TAKE AGGRESSIVE
POSITION

CARRYING COSTS & SHORTAGE COSTS //


RISK VS. RETURN
EXCESS
12% Carrying Cost
INVENTORY
STOCK OUT

Product Contribution
Margin

CASH HOARD
EMERGENCY
LOAN

The Cost of Equity


Current Debt + 7.5% Fee

EASY CREDIT

(The Cost of Equity)(VC%)

NO CREDIT

HIGH LIQUIDITY // HIGHEST SALES


VOLUMESURVEY SCORE PENALTY
LOW LIQUIDITY// HIGHEST ASSET
TURNOVER

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